Some of the most common questions posed to me have to do with gold.
Perhaps no other investment vehicles elicit such zealous opinions as this precious metal.
Investors on the bullish side of the coin tend to be permanent true believers, believing there is no substitute for this unique commodity as the ultimate store of value.
Those on the bearish side tend to consider the metal as irrelevant in the modern economic scheme of things, as a relic to a previous version of monetary system.
Both positions have components that ring true. Under the fiat monetary system of the modern world, gold has been retired as a tangible currency mechanism. The gold standard is a thing of the past and no government or central bank would seriously consider re-adopting this system.
True gold advocates, often referred to as gold bugs, would not even deny this statement. They would however add a caveat, because a true gold bug believes gold is irrelevant only until it’s not. A true gold bug has quite a bit less confidence in the durability of the current fiat money system and believes when the system of central banking and government borrowing inevitably cracks, gold will once again become the most relevant material in the world.
I like gold, and silver, as a sort of portfolio insurance that acts distinctly different than both stocks and bonds, an extra level of diversification in a well rounded strategy. Gold seems to have become a barometer of economic fear and as confidence has strengthened over the past year the bull market in gold has taken a breather.
As gold prices have settled down it’s been easy to get discouraged with the metal, but the diversification gold can bring to a portfolio is still important.
I also believe there are too many factors influencing the price of gold to perform any accurate fundamental analysis, and I’ve heard too many technical analysts make wrong calls as well. I tend to think you either want to own gold or you don’t, and I personally am a long term owner of the ETF version of the metal.
Next week I am excited to host James Rickards, the author of “Currency Wars: The Making of the Next Global Crisis” on the radio show version of this column. Rickards has a great understanding of the historical role of gold in the world economy and strong opinions about the importance of gold today. Anyone interested in the subject will want to tune in Monday on 89.1 The Lakeshore.