In the post-gold-backed U.S.-dollar environment, where flat currencies have run wild and the price of gold has been viewed as a hedge (in general) to inflation and uncertainty, we’ve seen interesting phenomena take hold.
Without gold backing currency, debt levels have driven most of the expansion we’ve seen in recent decades. Gold has largely been pushed aside as an investment by financial experts who have preferred the dividend-producing power of businesses to stores of value like gold.
That said, gold’s value has traditionally held flat in real terms based on deflation and the value of the U.S. dollar, making this an excellent place to hide (traditionally) for investors looking for absolute stability (i.e. zero real return) rather than potential losses.
Thus, in declining stock markets, gold tends to do well as an “investment.” As we’ve seen in recent years, however, gold has not always acted as it should, or was expected to. This has caused some raised eyebrows among some finance analysts who suggest that gold may have lost its allure as a true hedge vehicle.
My take on gold right now is that it is functioning how it should. However, market distortions such as Central Bank interventions, bailouts (otherwise called Fed puts) and other non-organic market manipulations by the U.S. and other large economies have indeed changed the relationship between USD and gold, not necessarily in a positive way.
Having a 5% position in gold is what is recommended by many advisors. I do think such a position would prove to be valuable right now, despite these concerns around the functioning ability of gold.
Invest wisely, my friends.
