1. A Quantitative Approach to Tactical Asset Allocation
by Mebane T. Faber (Cambria Investment Management)

2. Information for Submitting Articles to Law Reviews & Journals
by Allen Rostron (University of Missouri at Kansas City – School of Law) and Nancy Levit (University of Missouri at Kansas City – School of Law)

3. A Brief Introduction to the Basics of Game Theory
by Matthew Jackson (Stanford University – Department of Economics)

4. Ham Sandwich Nation: Due Process When Everything is a Crime
by Glenn Reynolds (University of Tennessee College of Law)

5. The Golden Dilemma
by Claude B. Erb (TR) and Campbell R. Harvey (Duke University – Fuqua School of Business)

Campbell R. Harvey
Why is our paper on gold in the top 5 club?

Duke and CFO Magazine do a quarterly survey of CFOs around the world. For those in China, we asked about the Chinese Central Bank gold holdings.

There are a number of interesting facts. China’s official gold holdings are 1,054 metric tons which ranks sixth in the world. However, a single Exchange Traded Fund, the SPDR GLD, holds more gold than China. Furthermore, gold represents only 1.7% of China’s foreign exchange reserves. This sharply contrasts with the U.S. (76.3% of reserves) and Germany (73.5% of reserves).

Extraordinarily, the CFOs based in China thought that the official holdings should more than triple to a level of 3,616 metric tons.

We pointed to our SSRN research paper “The Golden Dilemma”, where we do the following exercise. The U.S. gold (metric tons) to GDP (billions) ratio is 0.56. The current ratio for China is 0.18. How much gold would China need to hold to match the U.S. ratio? It is 3,279 metric tons – which is remarkably close to the survey results.

Is it possible to get to 3,000+ metric tons? Since the first quarter of 2000, China has accumulated more gold than any other country. Over this period, China has added 690 metric tons – or roughly 50 metric tons per year. Indeed, the entire world gold production in 2011 was only 2,700 metric tons and Jewelry and Industrial/Dental consumed 2,425 metric tons of it. To hit the 3,616 target, China would have to be accumulating 800 metric tons a year over the next three years which seems infeasible.

This explains the downloads of our paper – we guess almost all from China, and this is an important policy issue for them.