There are differing views on choosing the optimal percentage of gold to hold in an asset portfolio.
These different viewpoints depend on how one views gold. Those looking for a return on their money in currency terms perceive gold as an investment which they can sell at a currency price higher than what they bought it for.
We would however argue that the idea of trading your fiat paper currency for gold today, hoping to trade the gold for even more fiat currency in the future, defeats the purpose of owning gold in the first place. Saving in gold is an insurance against the failure of fiat currency, not a means of accumulating more of it.
The healthiest and most natural way of looking at gold is to view gold as savings or as a form of wealth preservation.
Saving in Gold
Gold is, and for thousands of years has been, the focal point for many prominent savers of wealth. The European aristocrats, the Middle East oil barons, the ultra-rich, and even the central banks, all save in gold to preserve generational wealth. They save in gold without thinking about the return in currency terms because they understand the fundamental principle of gold as a generational and long-term store of value. They understand that gold is not an investment but that its a form of money that cannot be printed or controlled by central bankers.
As the world’s financial and monetary systems become increasing fragile, saving in gold is the ultimate safe haven for protecting you against a systemic collapse. In the inevitable transition that will follow such a collapse, holding gold as wealth is the ultimate strategy for survival.
Prudent savers understand that gold cements wealth over time which is why you do not need to care much about the ‘gold price’ as denominated in fiat currencies.
If you do not want to bear the high risk associated with chasing returns on the currency markets, you should save in physical gold because gold is the safest form of liquid money. Staying liquid is the same as keeping your wealth in gold. There is nothing wrong with investing, but buying physical gold is not an investment in the real sense – it is a timeless wealth-preserving asset.
When fiat currencies crash, your gold will become a truly priceless asset that will empower you through the transition.
Gold as Wealth
If you are trapped in relentlessly chasing paper profits while worrying about your positions, it is time to consider a shift of mind-set. To become a saver, you have to shift your focus from profit-seeking to sustainability, from chasing egoistic personal highs to becoming a family provider for generational wealth.
With a mind-set of viewing gold as a savings asset, you will not only solidify your own wealth but have the power to pass on your wealth to the next generation. This has been the case for many European aristocrats who were able to pass on wealth from generation to generation.
As we can appreciate from history, cash is not king when the cash is not backed by anything. In fact, the world’s fiat paper currencies have all lost 99% or more of their value in the last century.
Gold is the safest and most stable store of value known to man. No other asset class comes close to gold in terms of stability over history. Gold is not an investment per se. Gold is money. Gold is savings. Gold is wealth.
If you have the mind-set of a saver and want to minimise your risk, it is actually natural to keep most of your savings in gold. If you are unable to determine a favourable risk-reward ratio for any of your potential investments, you might even consider keeping close to 100% of your savings in gold. It is certainly better to keep 100% of one’s savings in gold than keeping one’s savings in the form of constantly depreciating fiat currencies. Ask yourself, are you buying gold as a means of generating fiat currency returns or are you acquiring currency as a means to buy gold (as wealth). We much recommend the latter.
Work and invest to acquire currency but hold your wealth in gold. This is the fool-proof strategy that has worked for thousands of years.
Saving in gold frees your mind. With gold, you can sleep well at night and do not need to worry about inflation, financial markets and currency risks. By saving in gold you can stand strong and avoid the flawed western mentality of chasing paper money returns.
Investing in Gold
If gold is viewed from a western investment portfolio perspective, studies have shown that the gold price is inversely correlated with the prices of most other financial assets. Adding gold into an existing investment portfolio can therefore lower portfolio risk. This use of gold as a risk-reducing strategic asset class has been empirically validated by numerous studies (such as studies by the World Gold Council), and from the perspectives of different classes of portfolios, different investor backgrounds, and varying base currencies. Optimal allocations of gold in multi-asset portfolios by these empirical studies are usually found to be in the 5 – 20% range.
The reason that there is a negative correlation between the gold price and other asset prices is due to the gold price not being as dependent on economic and business cycles as most other financial asset or commodity prices. Therefore, the gold price does not react to events in the same way as the prices of most other asset prices react.
However, we advice you to view gold as savings/wealth rather than as an investment. Gold has the power to change your life for the better. It can give you peace of mind like nothing else if you just let it sit there without worrying about it.
First published here: http://j.mp/28XgRyE