A Very Few Elements of Gold Strategy


". . .one may well want to have a core position in gold."

Gold strategy depends on age, wealth, anticipated labor income, one's expectations and risk preferences, among other things.

I think it is appropriate to own gold as a long-term holder. The following elements suggest one may want to have a core position in gold:
  1. Gold has a current fundamental value of a minimum of about $1,000$1,100. This estimate is based on the size of various monetary aggregates I think relate most closely to the price of gold.

  2. Inflation remains a fact of economic life, due to the presence of the central banks. These banks have always inflated over the long-term, which implies that gold will tend to rise against the dollar over the long-term.

  3. Gold is insurance against a catastrophic collapse of the paper money system in the U.S., or in the G7 countries.

  4. The paper money system is not functioning well, and that it is likely to be reformed eventually with gold as a component.

  5. Central banks will accumulate gold by necessity to maintain their currencies and benefit their economies.

  6. Inflation is a fact of political life. In political struggles between debtors and creditors, the debtors tend to win and we get inflation.

  7. With very high government deficits and promises of future benefits, the risk of dollar depreciation has gotten much larger than at any time in the past.

  8. With the FED's large balance sheet and political pressures upon the FED to inflate, the risk of dollar depreciation has gotten much larger than ever.

  9. Despite factors 18, gold may (for reasons unknown) fluctuate in unaccountable ways for significant periods of time.

  10. Although gold is not being used widely as a medium of exchange, it still is functioning as the monetary unit of account for many major paper currencies in the world.
Once a core position is in place, there is no need to buy gold if price rises for that core position.

How large a core position may be depends on many factors and decisions unique to each person. Typical recommendations run from 5% - 25% among advisers who favor gold.

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