☆ Role of gold in your portfolio.

Investing in gold offers various avenues. Investors can acquire gold bullion, comprising physical gold in the form of coins or bars, or opt for paper-based gold assets such as gold stocks, mutual funds, exchange-traded funds (ETFs), futures, or derivatives.

Physical gold investments grant direct ownership and control over the precious metal, ensuring possession at all times. A gold individual retirement account (IRA) permits ownership of gold bullion while benefiting from the tax advantages of a traditional IRA.

Conversely, gold-backed paper assets like stocks and funds enable investors to partake in gold without the necessity of physical possession or storage. Although sophisticated investors may engage in trading gold futures and derivatives, these instruments are intricate and can amplify investment losses, thus not recommended for the average retail investor.

The diverse range of options facilitates the inclusion of gold investments in one’s portfolio. However, before delving into the gold market, it is crucial to carefully evaluate the advantages and disadvantages associated with investing in this precious metal. Like any investment, gold entails risks that necessitate thorough consideration.

Reasons to add gold to a portfolio:

  1. Preservation of Purchasing Power: Gold maintains its purchasing power over long periods, making it a reliable store of value even during half-century spans.
  2. Financial Refuge in Crisis: Historically, gold has been sought after as a financial refuge during political, economic, and personal catastrophes, serving as a safe haven asset.
  3. Operational Wealth in Deflations: Gold appreciates in operational wealth during major deflations, making it valuable in times of economic downturns.
  4. Speculative Demand: Demand for gold has a strong speculative component, particularly concerning inflation or its anticipation. The popular reputation of gold as an inflation hedge further stimulates demand.
  5. Demand Sensitivity to Inflation: Demand for gold is not solely driven by actual inflation rates but also by changes in the rates of inflation, reflecting its role as a perceived hedge against currency devaluation.
  6. Unique Supply Dynamics: Gold’s supply dynamics differ from other commodities; miners do not always increase production in response to price rises. Additionally, some gold is sourced from base metal mining, adding to the complexity of its supply chain.
  7. Potential as an Inflation Hedge: As gold moves into a more unfettered market, there’s a possibility that it could become a better hedge against inflation than it has been historically, especially compared to periods when the gold standard was prevalent.

But...

  • Gold serves as a hedge against major deflations but is not effective against yearly commodity price increases.
  • While it doesn’t protect against inflation shocks, it preserves real capital and purchasing power over the long term.
  • Gold’s value lies in its ability to preserve wealth, especially during times of economic uncertainty.
  • Despite its historical performance, gold’s effectiveness as an inflation hedge may improve as it transitions to a more liberalized market.


Key points from the perspective of global investing: gold and silver’s historical role as stores of value, their function as inflation hedges and insurance against crises, their low correlation with other assets, and their performance during market downturns make them valuable components of a diversified global investment portfolio.

  1. Historical Store of Value: Gold has been an exceptionally reliable store of value over extended periods, with no other financial or physical asset matching its track record.
  2. Historical Role as Money: Gold and silver served as money for centuries, highlighting their enduring significance in global finance.
  3. Real Returns Near Zero: Despite their long history, gold and silver have exhibited real returns near zero over extended periods.
  4. Inflation Hedge and Insurance: Gold and silver are valued for their effectiveness as long-term inflation hedges and as insurance against economic and political upheavals.
  5. Insurance Against Catastrophic Changes: Holding gold and silver provides insurance against catastrophic events such as economic collapse or hyperinflation, offering stability during crises.
  6. Low Correlation and Diversification: Gold and silver exhibit low correlations with other assets, making them powerful diversification tools to reduce portfolio risk.
  7. Performance During Poor Market Conditions: When traditional assets perform poorly, gold tends to fare well, providing a hedge against market downturns.
  8. Historical Global Asset Allocation: In the past, gold and silver comprised a significant portion of investable global assets, but their share declined as stock and bond prices soared.
  9. Silver’s Characteristics: Silver tends to track gold but has a higher correlation with other assets, making it less effective as a diversifier compared to gold.
  10. Gold’s Market Characteristics: The gold market is deeper and more significant compared to the silver market.
  11. Commodity Futures and Bonds: Commodity futures have low correlations with other assets, while bonds tend to move inversely with commodities due to their different nature as claims to real assets versus claims to monetary payments.
  12. Volatility and Return: Gold, despite being more volatile than commodity futures, has historically offered better returns.

Imagine you inherited gold 30 years ago, when it was worth $800 an ounce, and sold it now at $2000 an ounce, they’d enjoy a solid 40-60% return with little risk. However, this pales in comparison to the stock market’s performance, with gold’s annualized return over 30 years amounting to a meager 1.6%.

While gold offers insurance, diversification, and protection, it should only constitute a small portion of your portfolio, as stocks have historically outperformed. In the event of a currency collapse, owning gold may help preserve purchasing power, as it has been a store of value throughout history.

For instance, if 90% of your portfolio in “old dollars” undergoes a currency collapse, leaving it worth only 10% in “new dollars,” gold holdings could potentially retain their value, doubling your net worth. While the future is uncertain, gold has historically served as a store of value amid currency crises.

Key points from the perspective of government actions and financial crises:

Government responses to financial crises often involve measures such as suspending convertibility to gold, while individuals and investors turn to gold as a safe haven asset and hedge against inflation and speculation.

  1. Scapegoating Speculators: When formal currency arrangements break down, governments often blame speculators for exacerbating the situation, portraying them as convenient scapegoats.
  2. Nixon’s Actions: President Nixon suspended the convertibility of the dollar to gold on August 15, 1971, marking a significant departure from the gold standard and reshaping the global monetary system.
  3. Gold as a Safe Haven: During times of financial turmoil and excessive speculation, individuals and investors often seek refuge in gold, viewing it as a stable asset that contrasts with speculative investments.
  4. Antithesis of Speculation: Gold is perceived as the antithesis of speculative values, providing a safe haven from the uncertainties and risks associated with speculative markets.
  5. Hedge Against Inflation: Amid chronic inflationary periods, commodities and precious metals, including gold, are seen as effective hedges against the erosion of purchasing power, offering protection to investors against the devaluation of fiat currencies.

From the perspective of gold as a safe haven: while gold offers certain advantages as a safe haven asset, such as its lack of counterparty risk and historical role as a hedge against inflation, its effectiveness can be influenced by various factors including investor expectations, real interest rates, and tactical considerations, which can impact its cost-effectiveness and suitability for mitigating systemic risk.

  1. Insurance: Gold is often regarded as a form of insurance within investment portfolios, providing protection against various risks and uncertainties.
  2. Hedge Against the Banking System: Gold serves as a hedge against the vulnerabilities and risks associated with the banking system, offering a form of diversification beyond traditional financial assets.
  3. No Counterparty Risk: One of the key advantages of gold is that it carries no counterparty risk, unlike many other financial assets that are dependent on the reliability of counterparties.
  4. Historical Perception as Inflation Hedge: Historically, gold has been viewed as a hedge against inflation, although its effectiveness in this regard can be variable and noisy.
  5. Tied to Real Interest Rates: Gold prices are closely tied to movements in real interest rates, particularly when inflation outpaces nominal interest rates, leading to a decline in real rates and an increase in gold prices.
  6. Payoff Profile: Gold exhibits a mildly explosive crash payoff on average, with a wide range of returns observed since the 1970s, making its performance somewhat unpredictable.
  7. Expectations-Based Value: Gold’s value is largely based on investors’ expectations rather than intrinsic factors such as yield or intrinsic value, making it challenging to fundamentally evaluate.
  8. Tactical Considerations: Effectively using gold as a safe haven requires making tactical calls regarding factors such as inflation or real interest rates, which can impact its cost-effectiveness.
  9. High Amount Needed for Hedging: The substantial amount of gold required to fully hedge a portfolio can result in high carry costs, reducing its attractiveness as a safe haven asset.

Is Gold A Good Investment?

From century to century, gold has long been the true “standard” for investors simply because this bright yellow alloy is a highly sought-after precious metal which has had “immense value” before recorded human history. So, is gold a good investment to include within your portfolio? Let’s ponder deeper into this topic.

A major element of investment in today’s uncertain economy is linked to the gold standard for various governments and the International Monetary Fund. Since the 1940s, gold has had a fixed exchange rate that has steadily climbed to well over $2,600 an ounce in recent times. Thus, with today’s sharp growth in world economies, and gold still playing a major role in both US and foreign exchange rates, the world’s reserves will always trade in gold stocks, coins, bullion and even gold jewelry.

Gold Investment Still Shines Bright.

Today’s savvy investors know that gold is still considered to be a top investment because it is a symbol of lasting value and purity and prestige. In turn, there are many holders of gold who use bullion, bars or coins as a good investment hedge against today’s uncertain global economic market. For instance, a top gold investor commented online about always having a gold allocation as high as 30 to 40% because “gold is protection against global uncertainty.

There are different types of gold investing that include the following:

  1. Gold exchange traded funds (ETFs). This popular means of adding “gold exposure” to one’s portfolio is hugely popular with investors today because ETFs is both allocated and unallocated by a custodian or bank, while being traded as gold futures on Wall Street.
  2. Gold traded notes (ETNs). While many savvy investors say that ETNs are a bit more risky than other gold investments, ETNs are viewed as “flexible” method for investors who trade them short or long.
  3. Gold bullion. The investors who enjoy buying physical gold such as bars, jewelry and coins say they enjoy this type of investment because you can purchase gold of this type for as close to the price of the current gold rate as possible. Thus, an investor who purchases gold coins, such as the American Eagle and American Buffalo, can rest assured that it will return a top premium.
  4. Gold jewelry. While investors are not hocking their family’s gold jewelry for the sake of a good investment, there is a widespread point of view that purchasing top quality gold jewelry is “always a safe investment.
  5. Gold mine stocks. Because today’s gold mining stocks have a reported 3-to-1 leverage to today’s gold spot price, this type of gold investing is usually left to those savvy investors who specialize in researching and they buying small gold mines on speculation about striking lots of gold. Still, the global gold production has been on the decline since 2000, state Wall Street insiders, and this means “gold mining stock could bounce back big time.”

In general, there is always a good way and means to buy gold today with the many gold investment firms and gold custodians offering their services online.

Should I Buy Gold Now?

While gold investors are busy watching stock prices rise to all-time highs, there is always a chance for precious metal investing to drop a bit due to gold’s open interest falling at times when the economy remains uncertain.

Wall Street reports “trillions” in gold being sold and invested monthly around the world. For instance, more than $1.2 trillion was added to the value of global stock markets in May; while Goldman Sachs just swapped nearly $600 million worth of gold with the country of Ecuador recently.

At the same time, Wall Street insiders have commented online about more and more investors jumping on the gold market and finding it exciting and profitable. The allure of gold investments come at a time when the U.S. economy is rebounding, and the housing market booming. In turn, this is making investors more upbeat about their precious metal holdings as the demand for “safe-haven gold” increases.

Gold Prices Remain Strong.

While the price of gold and other precious metals has climbed to unbelievable highs in recent years, there are investors who often assure other investors online that this is not just pie in the sky. Although, a strong gold market may dip a bit, it will always be strong when it comes to regular gains. “There is a huge interest in gold at the moment,” stated a gold custodian commenting on an investment website recently. He noted how Standard & Poor’s Index of gold shares “continued to gain strength in 2022.”

Gold’s open interest for investors “has never been better,” added the custodian when explaining how many retirement investors are converting their individual retirement accounts (IRAs) into various gold investment shares.

Overall, there has never been a better time to consider gold as a safe bet for investing in today’s uncertain world economy.