For businesses, rising gold prices may increase costs. For investors, a small gold allocation (below 15%) can act as a hedge, but it’s not guaranteed to outperform other assets like real estate or stocks.
The following points should be kept in mind:
1. Gold is the counterinvestment, have a little in your portfolio and hope it doesn’t go up.
2. Hedge funds have significantly increased their positions, showing more bullish sentiment on gold than at any point since the mid-1980s, according to a futures market analysis by Bespoke Investment Group.
3. In the long term, gold advocates believe the metal will retain its value as the dollar or other currencies depreciate. This view, rooted in long-standing concerns about governments devaluing “fiat” currencies through inflation, doesn’t guarantee that gold will outperform other tangible assets like commodities or real estate. Stocks generating cash flows and dividends can also act as a hedge.
4. It doesn’t matter who is running the government; they are both spending. Theoretically, the increasing gap between tax revenues and government spending could lead to money printing, causing the dollar to lose value and driving people to buy gold, given its limited supply. A similar argument applies to Bitcoin as digital gold.
5. Most advisors recommend keeping allocations below 15%. If gold keeps rallying, it may be for bad-news reasons. Pessimism about the economy’s future is usually positive for gold. Watch the University of Michigan surveys of consumer sentiment - gloomier forecasts by consumers are good for gold and worse for stocks.
- Opinions are my own. No investment/tax or other advice. -
