While some it as a yellow pebble, it seems Goldman Sachs recognizes other 'value' in gold suggesting that amid the chaotic complacency of markets, precious metal derivatives could provide an attractive broad multi-asset hedge.

Via Goldman Sachs,

Gold implied volatility is at the 0th percentile and implied volatility is close to 1-month realised. As a broad portfolio hedge for both equity drawdown and rate shock risk, straddles on Gold appear attractive.

The price of a 1-month straddle is close to all-time lows at 2.2% (the low since 2002 was 1.9%), and this is also the breakeven, i.e., how much Gold needs to move in the next month for a positive P&L.

A positive hold-to-expiry P&L has historically come nearly twice as often from a positive than from a negative move. On average, the payoff of a straddle is negative but from the current low price of a 1-month S&P 500 straddle, the average payoff for a hold-to-expiry trade was positive and the probability of a positive P&L was 60%.

Moreover, this is a conservative estimate as investors can exit the trade before expiry once the P&L has turned positive – assuming investors are able to time the max payoff of a straddle suggests the probability of a positive P&L is around 92%.

Is that why they call it precious?