Gold has been climbing so fast that it has gathered a lot of attention lately. I came across an insightful article on the yellow metal by Ray Dalio, one of my favorite investors and thinkers.
Yeah, gold has pulled back from its all-time highs. However, I believe the gold story still has plenty of chapters left for those patient enough to stay seated preferably without checking the price every five minutes.
I currently maintain an appropriate exposure to the yellow metal for a number of models through a combination of funds and ETFs as part of our broader strategy to navigate evolving macro conditions with prudence and balance.
Here is a section:
When I think about how much gold one should have in their portfolio, I view that as first and most importantly a strategic asset allocation rather than a tactical/market-timing decision. I think everyone’s starting point for investing should be to know and be in the portfolio that is best to have, independent of any tactical views of the markets.
Any deviations from that portfolio should only take place if the investor believes that they have better abilities to market-time which investments are better than others. Most investors do not have this ability, so they should just stick with their strategic asset allocation mix.
For this reason, when investors ask me if they should buy or sell gold based on whether I think it will go up or down, I tell them that that is a tactical, secondary question because they should first start by asking themselves what amount of gold they should have in their strategic asset allocation. When I look at this in my own analysis, this is between 5% and 15% depending on what other assets are in the portfolio and the investor’s risk preferences.
As for tactically market-timing over- and underweighting gold in one’s portfolio, as explained, it should be overweighted at times of monetary system breakdowns and high risks of money confiscations and economic/monetary wars and underweighted at other times because, over long time frames, gold has been a relatively poorly performing asset (like cash) because it is not a productive asset.
In any case, what I’m trying to get across is that you should think of gold as being a fundamental money that you should own at least some of. Most investors do not own any.