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:
- 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.
- 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.
- Gold is insurance against a catastrophic collapse of the paper money system in the U.S., or in the G7 countries.
- The paper money system is not functioning well, and that it is likely to be reformed eventually with gold as a component.
- Central banks will accumulate gold by necessity to maintain their currencies and benefit their economies.
- Inflation is a fact of political life. In political struggles between debtors and creditors, the debtors tend to win and we get inflation.
- 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.
- 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.
- Despite factors 1–8, gold may (for reasons unknown) fluctuate in unaccountable ways for significant periods of time.
- 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.
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.