“In a recent report, analysts at FTSE Russell said that gold has once again reestablished itself as an important neutral monetary asset as the global economy fragments. Co-authors Sayad Reteos Baronyan, Director of Multi-Asset Research, and Alex Nae, Quantitative Research Analyst, stated that gold has become an essential diversification tool as bond and equity markets struggle in a world marked by rising uncertainty and higher inflation.”
Summary: swap out your 40% bonds for gold + bonds. Keep the stocks.
So let’s say you don’t want gold in your portfolio… its just a fear trade, it’s barbarous relic that pays no dividends, etc etc. Fine.
Well at least consider this: “Boglehead investment philosophy generally suggests keeping at least 20% of your overall portfolio in international stocks and bonds for diversification. However, to maximize diversification benefits, some investors allocate around 40% of their stock holdings to international markets”.
Right. At least 20% to foreign BONDS. Not just stocks. The point is to get out of only having US Dollar denominated assets.
“If you don’t get currency diversification from gold… get it from somewhere”.
I consider gold to be somewhat the same as Olympic pins.
During the Atlanta Olympics, I was a first time attendee. I saw people wearing Olympic pins and thought it was somewhat silly. (Yes, I also thought the same thing at Star Trek conventions where people dressed up, but I digress).
I went into a couple of places and was give pins, actually one was a pin used as marketing by an Olympic sponsor. Anyway, I did relent and wore it in plain view. Within a short time I had offers to swap pins with people and one offered me $10 for the pin (which I got for free) which appeared to be in short supply.
Later I saw a vendor who accepted cash or pins. Perhaps they realized that some people might give up a pin which others coveted. You see, some pins were easy to get and others more difficult and that created a ‘price’ for the item. The price was what people were willing to pay for a pin that might have been free or purchased for $5. It seemed that most pin could be used in place of $5.
I often use the example of me living in the Atlanta area and driving up to North Georgia to go gold prospecting. There are those who value an object for its price and there are those of us who know the real cost. Personally, I could find gold lying on the ground and create a price just by bending down and picking it up. You should know that the ‘cost’ of having to pick it up can increase the price considerably.
Having gold is not as useful as knowing how to find it.
I think research would show that there are many more people who value gold more that they would value Olympic pins.
It’s those people who determine the real value of gold.
Owning gold is of considerable more value than knowing how to find it. The owning of it is proof of ability to perform, the “knowing how to find it” carries with it the burden of proving that claim. There are many possible impediments standing in the way of accomplishing that proof of performance, ie: owning the gold you find.
This is why gold is on the move, it’s because it has been politically upgraded to a completely new status in the world banking system. The US Dollar has been weaponized, rightly or wrongly after the invasion of Ukraine, and countries has been seeing since then that the Dollar isn’t really neutral, and that they had best diversify away from it.
The repricing of gold isn’t taking place at the “Cletus walks into a coin shop and wants to buy a bullion coin” level… the repricing is taking place at the national central bank level.
Basel III is an international regulatory framework designed to strengthen the banking sector by improving risk management, supervision, and capital requirements. It was developed by the Basel Committee on Banking Supervision in response to the 2007–2009 financial crisis, aiming to prevent future economic instability.
Key Features of Basel III:
Higher Capital Requirements: Banks must maintain a higher percentage of Common Equity Tier 1 (CET1) capital, ensuring they have sufficient reserves to absorb losses.
Leverage Ratio: Limits excessive borrowing by requiring banks to maintain a minimum leverage ratio.
Liquidity Standards: Introduces the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to ensure banks have enough liquid assets to withstand financial stress.
Counter-Cyclical Buffer: Allows regulators to impose additional capital requirements during periods of economic growth to mitigate risks.
As of July 1, 2025, gold will officially be classified as a Tier 1, high-quality liquid asset (HQLA) under the Basel III banking regulations. This means that U.S. banks can count physical gold at 100% of its market value toward their core capital reserves—a major shift from previous rules where gold was marked down by 50% as a Tier 3 asset.
This reclassification reinforces gold’s role as a strategic financial asset, recognizing its stability and liquidity in times of economic uncertainty. Central banks have been increasing their gold holdings for the past several years as a result.
I agree, I jumped into gold at about $1250 it would be super hard to convince myself to buy any more now. I think it’s reasonable to slowly Dollar Cost Average into gold, monthly purchases, over an extended period… 1 or 2 years. Even longer. Why not 48 monthly periods? Think of it like a car payment… a temporary thing.
“I’m a long-term investor… I don’t pay attention to the little bumps and wiggles. Dollar cost average for success, right?”
Well…
Over the past twenty years… Gold has matched the S&P 500 performance quite closely. In fact, it’s been a little bit better. I have data back to 1/1/1994, and gold has whipped the S&P 500 since then.
“But, but, but… gold has sucked compared to the S&P 500 since Great Financial Crisis and COVID Low!”
But if you’re really a long-term investor, shouldn’t you be paying attention to those longer time scales? It shouldn’t be surprising that the S&P 500 performed well after it went on massive sales those two times.
The best thing for a portfolio is to have assets that tend to go up and which have low correlation… they don’t go up together. That would be gold, US stocks, international stocks, bonds, cash, and your home equity of course, if you are a homeowner.
I was using the PerfCharts function on Stockcharts.com which is total return… index change PLUS dividends.
Go here and manipulate the slider bar as you wish… you can see the relative performance of Gold, and the Vanguard S&P500 Mutual Fund and Vanguard Total Bond Mutual Fund.
Adding my two cents about buying/holding gold. To be frank, it seems to me that nobody has ever adequately explained its price fluctuations, which was enough for me to intentionally ignore it completely through my accumulation years. I can at least fathom the concept of businesses increasing in value based on earnings.
As I approach retirement, I considered it, but find the security of a ladder of TIPS bonds make it much easier to sleep at night. I now have 28 years of known cash flow in today’s dollars, plus the remainder of my investments still in broad-market stock ETFs. This means that in 10-15 years, if the market is up, I can add more future years to that ladder. If it’s down, I’ll wait another 5 or more years.
Not saying this is a good plan for most folks, as TIPS ladder concept took me quite a while to fully understand and implement. And now I won’t worry that gold may drop for reasons nobody anticipated, whatever inflation happens to be doing at the time.
I like the TIPS ladder concept. David Enna at TIPSWATCH.COM has written extensively about it. Right now I have a boatload of short-term TIPS in an ETF called STIP. I just don’t like longer duration bonds right now. But if long-term interest rates surge higher, I could be buying those. I have I-Bonds also.
Basically, investors are nervous about the ability of governments to pay their debts, not just the US but also France has a crippling debt burden. So they want to have an alternative asset to hold in addition to bonds.
Investing is never “either-or”. Binary thinking, in-or-out, is really detrimental. If you have bonds, cash, stocks, and some alternatives (gold, real estate, commodities) those type of portfolios have been shown to have the best risk-adjusted returns over long periods of time. Example: Harry Browne’s Permanent Portfolio, or Gold Butterfly.
Thanks for the links. I went with the ladder due to two factors: 1. I”m approaching retirement. 2. The real yields were historically high. Of course they may well go higher (I won’t get political here), which would be even better, but item 1 was enough for me to pull the trigger. FWIW, for every $10,000 I spent on TIPS, I will get an overall real return of $14,335. Of course, the earlier years have less time for compounding, so the return will be much lower for them, and higher for later years. I designed the ladder to yield the same real amount each year, meaning that the interest gets spent as it comes in, so earlier years have lower principals.
A couple of things worth mentioning - TIPS ladders are expensive; I put about 60% of my retirement assets into the one I created. Also, they are a pain to hold in a non tax-deferred account, since the principal adjustments for inflation are counted as income. This means you can be paying taxes for years on money you won’t even use until the future. Mine are all in a traditional IRA.
But people don’t invest for 100 years. According to your chart, someone who started investing right around 2000 didn’t recover for another 15 years. Whereas Gold increased. Not saying that one or the other is a “better” investment, just that it’s ridiculous to throw up a 100-year chart as proof to invest one way or the other!
But you bring up a great point. Institutions invest for 100 years, people at most have 40 working years, then the portfolio has to safely glide another 20-ish.
It’s much better for individuals to forget about “stocks deliver on average 10% a year” because you could get stuck in a long multi-year negative return rut which wrecks your short, fragile human life. The bank, insurance co, endowment etc will be fine, but you’re destitute.
It’s better to have several non-correlated assets that tend to grow over time, and gold is an important one.
Stocks (US and International), Bonds, Cash, Real Estate, Gold, and I have Energy related investments also… the IEO ETF.
Multi-year severe negative return ruts have happened THREE TIMES in my lifetime. From the late 1960s to 1982, 2000-2002, 2007-2009. During 2000-2002 the celebrated QQQ lost 80% or more. People were literally killing themselves because if they owned it or other tech stocks with leverage, they basically lost everything. Many tech stocks went to zero. Zero is -100% TILT TILT TILT.
Good real-world examples there! (And I was replying to JPW050’s message and chart. You can see at the top right of my message there is an arrow that points to it and you can click back and see it.)
Regarding Gold (and precious metals) one of the metrics I look at is the relationship/ratio between Gold and Silver – which is why most recently I’ve put money into Silver versus Gold as Gold is way overvalued compared to Silver right now.
