Imagine you have a meeting in New York City, haven't met the person and don't know where the meeting is. You must somehow find each other, though. Where would you start? Grand Central Station at noon.
That was the response of the majority asked by Thomas Schelling, a game theorist and Nobel Prize winner in economics, in experiments reported in "The Strategy of Conflict," published in 1960. Most situations throw up a clue, a "focal point," around which to coordinate, even if it takes imagination as much as logic to find it, he theorizes.
Now imagine the world economy goes into a tailspin. There is panic selling of risky assets. Where should you seek safety? Cash is the most liquid asset; but which kind? The dollar is a natural focal point, yet has its flaws. Another destination to consider, if only because others are starting to think the same way? Gold.
It's true that gold keeps some strange company. Ardent gold bugs seem to know a lot about firearms, the best places with access to fresh water and the best ways to preserve food. Gold is hardly cheap, and one argument in favor of investing in it — inflation — is not threatening at the present.
Consider the alternatives, though. Besides the dollar, other currencies such as the euro, yuan and yen also have downsides and also can be controlled by countries' monetary policies. By contrast gold's yield — zero — seems almost racy.
Tellingly, managers of those rainy-day funds seem a mite concerned that they are crammed into the same spot. The share of dollars in the $10.7 trillion of reserves reported to the International Monetary Fund has dropped from over 65 percent when Donald Trump was elected president to below 62 percent in the latest figures. This may in part be a response to growing political risks. The dollar's central role in global trade and finance allows America to impose financial sanctions to great effect. It has been doing so with greater frequency, so Russia, for instance, has drastically cut the dollar share of its reserves, to 22 percent, while raising the shares of euros and yuan.
Russia has been a big buyer of gold, too. In that, it is not alone. Net purchases of gold by central banks rose by 74 percent last year to the highest since 1971, the year the dollar's peg to the gold price broke.
And so, like the popularity of Grand Central Station, gold is starting to appeal again as a spot to converge upon. You would have to mix with some strange people there. But can you really say that you would never visit?