There is no asset that prompts more emotional reactions than gold, so I really shouldn’t have dismissed its role in a modern investment portfolio with a mere throwaway lineI pointed out that gold had been a hopeless hedge last month and warned that it was likely to continue moving in the same direction as stocks, making it ineffective as a way to protect against share-price losses.
As several readers said, the full story needs more than just a line. Gold’s role as a hedge depends on the risk you are trying to protect against, and it has its uses. The metal has been the last word in insurance against the collapse of the state for millennia, being near-universally exchangeable and easy to hide away or carry across borders.
But gold isn’t a good replacement for Treasurys in a standard 60% stock, 40% bond portfolio. When stocks fall, investors want a diversifier that rises in value to cushion the loss. But gold fell alongside stocks during the market panic in March and again last month, and might continue to move with stocks for some time.
We’re in an environment where stocks like inflation, and gold likes inflation. The outlook for inflation is closely tied to the economy, with a stronger economy meaning more inflation and vice versa. An improving economy should help stock prices, so stocks rise with gold. A worsening economy would mean less inflation, so stocks fall and so does gold.
jmackin2 The commodity market is driven by cartels and big trading syndicates.
jmackin2 Without my glasses..i thought it read .God.
jmackin2 Gold for me isn't a hedge. I just try to live my Scrooge McDuck fantasies writ small by having one bathtub filled with gold coins. Diving in has, so far, been unsuccessful, but I'm working on my form.
jmackin2 You don’t own gold to protect against a stock market plunge, you own gold because of endless printing of Fiat. You can’t print prosperity.
jmackin2 $5 bill is the best hedge
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