So although I’ve always heard people buy gold as an investment, I used to think it doesn’t make much sense.

Not only it doesn’t yield interest/dividend/cashflow, if I buy real gold it’d actually cost money and effort to store it.

And historically it only holds up to inflation, while stocks and real estate increase manyfold meanwhile.

But I’ve changed my mind and I think I’ll probably be allocating around 5-10% of the portfolio in gold, depending on how I read the market and macro-economic … well, unless I change my mind again.

The obvious

So kind of the obvious reason would be a hedge against economic downturn.

Sure stocks perform better in the long term, but that moment when it comes down 30% or 50%, it still hurts and I for one am definitely not immune to the emotional toll if/when that happens.

(with only 6 months of investing experience I haven’t experienced that yet, but I think I’m as mentally prepared for it as I could. One way to help is writing this blog.)

Gold is basically a “currency” that people flock to when things turn to shit … so say if I have 40% of my portfolio in stocks, just by making it 30-stock 10-gold, now that gold not only doesn’t go down, it’ll probably go up and it really dampens the blow.

Of course in the long run I might earn less, but it’s worth the hedge and gaining good sleep even during a downturn.

The not so obvious – long term up trend?

But some recent development seems odd … in 2023/24 stocks been going up, but gold price also has been as well.

So I started to wonder and try looking beyond the obvious.

What I’ve just learned is beside “fear” and “downturn”, there is another short-term influencer and a long-term influencer on gold price.

The other short-term influencer is U.S. interest rates.

After hearing the explanation in a youtube video, it makes sense. I’d probably do the same as well … if USD risk-free interest rate is good, I’d want to move a bit of gold into those tasty bills/bonds.

Which also helps during a downturn … interest rates will shoot down, and that helps gold prices even more and makes it work better as a hedge.

But that’s not all.

I am thinking I’ll be invested in gold in the long-term because, there will probably be a long-term trend of central banks buying up more and more gold.

Geopolitics and Gold

I’d have never come up with the correlation but after hearing the explanation, it makes total sense.

USD has been a very strong global currency and most developed countries hold a decently large reserve of USD assets – cash, bonds, etc.

But US govt has power over USD of course. And as the relationships worsen between the democratic western world and, well the rest, these other countries are getting more worried about holding large USD reserves.

And if not USD, what else is the best global currency?

Gold, of course.

So as the cold war escalate and countries become less friendly, gold is going to be in higher demand – both in terms of central banks needing it, and well also probably wealthy people who are holding USD and having the same worries as central banks.

The way I see it, the cold war will only worsen in the next 10, 20 years and that’ll keep the upward pressure on the gold.

Of course short term influences like US interest and the equity market will make it go up and down, but it should be an upward trend that moves even faster than inflation going forward.

With that said the equity market will still win in the long term probably so I’m most likely keeping it around 5-10%. Let’s see if I’d change my mind later.