“And the last option is to have a different configuration of membership of the euro area, in which the easiest outcome would be for Germany to leave. That could be temporary. They may not want to abandon the ultimate goal of monetary union, but I think the problem is that it is very hard to be explicit about that unless you are prepared to accept political union and no country has been prepared to do that yet,” King states.

He believes long-term asset managers should adopt a pragmatic approach to investment;

“If we don’t quite know what the future holds, there is little point in getting carried away by very fancy mathematical calculations of optimal portfolios. Don’t rely on past data to be a good guide. Try to think through what mix of assets gives you the best chance of surviving some big event. That must mean including assets that are negatively correlated or uncorrelated in your portfolio,” he says.

“And I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold,” he adds. In recent years, many central banks in Asia and South America have been increasing the amount of gold in their portfolios. King believes this is a sensible approach. “I can understand why they feel that some proportion of their portfolio needs to be in gold.”

King also sees a role for gold as a hedge against (hyper)inflation; “It’s still early days to conclude that around the world, governments have found the solution to maintaining price stability with a managed paper currency. We made real progress in the 1990s and early 2000s and a lot of countries went down that road and followed us. But hyperinflation has clearly not disappeared – the second biggest hyper-inflation in history was in Zimbabwe in this century – so I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future,” he says.

So there you have it guys (and girls). One of the most important former central bankers stating;

Current monetary policy doesn’t work any longer

Same applies for outdated financial models investors use

Hedge your risks buy buying gold to ‘survive some big event’ (a Big Reset