| | | A couple of comments:
First, I don't think of gold as expensive or cheap. Rather, gold is a standard by which all other things are measured. So for example, if you get a ruler and you see 1 inch, and then you measure two pieces of cloth, one right after the other and you say the first cloth is greater than an inch and the second is smaller than an inch, then you don't turn around and say the inch is larger in the second measurement, do you? The inch is the inch. It is the standard by which all other things are measured. So if gold looks expensive relative to the dollar, then an examination of the causes of that change does not conclude with a statement that gold has changed in value over that time, but rather the majority of the variation can be explained by a devaluation of the dollar. The dollar supply is much greater than it used to be. The cost of goods in dollars are much greater than they used to be. Gold is not the thing that has changed much. Gold is a store of value and the thing against which all other things are measured.
Second, you own bonds and gold in large part to hedge against stocks. Bonds no longer serve that purpose, because of negative real yields being greater than the carrying cost of gold. In that environment, gold is a better portfolio balancer than bonds. We are seeing that this year. When stocks go down, then gold goes up. Today is a great example of that. Stocks are down, gold and gold miners are up. It's providing a good hedge against stocks. And it has the kicker of a high probability of further dollar devaluation through QE, ongoing rate suppression, and massive fiscal deficit spending coming in 2021-2023, all of which provide a good fundamental underpinning to holding gold.
Yep, it feels good to own some gold right now, especially if you rebalance towards a defined gold portfolio percentage periodically over the next few years, as you would normally do with a portfolio that included bonds. This is so that you can buy low and sell high over the long run. At some point in the future, when bonds have lost enough value that real yields turn positive, then I will sell my gold and buy bonds with the proceeds. But for now, that doesn't make sense with negative real bond yields and the high probability of significant losses in bond prices.
Those are my thoughts. Probably, you've already thought about all of that without me saying it, but I like to post to get my own thoughts in order, which helps me explain my thinking to myself as well. :) |
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