Comment on Should You Buy Gold? by Kent Smith

Kent Smith — Tue, 07 Feb 2012 21:32:03 +0000

I’ve heard it tossed around that an old rule of thumb was to place 5-10% of your assets in a portable commodity w/crisis-value, like gold. If you invested $100K in 2002 and you adjusted each year to have 90% follow the S&P and 10% be held in actual gold (not shares in gold companies – actual gold metal), you’d have had 160k at the end of 2010. Without gold (just S&P), you’d have had 130K. If you didn’t sell/buy gold to keep it at 10% of your total invested, but just let 42 ounces ride from day 1, you’d have 176K. In 10,000 years of settled human existence, we have seen, for one reason or another, collapse after collapse – times when survival depended on portable non-perishable ‘desirables’ like gold. This has even happened in living memory. Despite the facts of history, it does seem hard to imagine a time in the future when one’s life may again depend on what one has sewn in the lining of one’s coat. Furthermore, the current price of gold makes a 10% move in that direction seem riskier and far more painful than such a move might have seemed a mere 10-11 years ago, when gold was going for $240/oz. If the s**t does hit the fan, it seems to me that only those who entered the room in 2002 with a gold-type hedge will come out completely clean-faced. You mentioned above that scenario 3 (crazy inflation) is most likely, which is when gold would be worth the most – yet you do not advise investing strongly in the return that would be highest and most certain under your own analysis – painful and frightening as it would be at the moment to make such a move. Why?

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Comment on Should You Buy Gold? by Kent Smith