So I made a long post in some facebook group about why I think gold is a good investment, and can go up 2-4x in a few years.

The post is long enough that I thought I shouldn’t waste it so I am posting it here too.

Currently I have 45% portfolio allocation to gold. Planning to increase that to 50% with some leverage in place.

I might adjust it in the future but I think it will keep being a big portion of my portfolio. Let’s see this post after a few years and see if I can re-affirm my decision.

The 60-year inflation cycle

So the theory is, in a low-rate, low inflation environment, the USD is strong and it’s feasible that there can be a period of years where gold priced in USD couldn’t even catch up with inflation.

However, on the other side, in a high-rate, high inflation environment, gold will rise even higher than inflation, in some cases even beating the stock market itself, like in 2024.

It is my belief that there are super 60-80year cycles in play. Starting in the 1920s after WWI, rates have gone down for 25years until end of WWII. Then a significant period of inflation and rate hikes until the peak in 1981 around 16% – so from peak to peak 60 years.

From the last peak in 1981, rates have pretty much come down-only until now. BUT, I believe the turning point is here, back in 2022 with the hikes.

Of course only time will tell, fed is still in a “cutting cycle” at this point. But I think the downtrend in rate from the peak of ’81 is over and it lasted for 40 years.

If my theory is correct, the next 20 years will be a series of rampant inflation and rate hikes unlike anything most of us have seen in our lifetimes. It’s not “rare” per-se though as in the post-war generation that’s the only thing that anyone ever sees.

5% inflation will feel “low” in the coming years. 10-20% will be the new norm.

It sounds nuts, but if you tell someone back in the 60s and 70s that there will be a zero interest rate world, they’d also think you’ve gone nuts.

Why I think 2022 is the inflection point

The reason I believe 2022 is the inflection point are – de-globalization trends, insane national debt problems, crazy QEs in recent years, etc.

de-globalization events like the Russia-Ukraine war caused the US to cut Russia out of the swift system. That will drive other non-allies to want to de-dollar and drive down USD demand, hence a lower valued dollar = inflation.

Also with the US-China trade war, exports will be less and less, not to mention with a trump administration this will accelerate, so of course more inflation due to more expensive goods and services.

The crazy US national debt and deficit is also not helping at all. With interest payments skyrocketing, they can only either cut budget or print money to pay it. (third option is default but will not happen in a million years). They are going to try to cut budget and reduce deficit with DOGE, but I think what can be done is limited. Printing will be the main option and additional QE won’t stop until everything falls apart.

Why add gold to the portfolio, and not just stocks/crypto

So in a sense, it isn’t that gold is going to go up. It’s the USD and other fiat currencies that is crashing down currently.

Of course not just gold, any investments will be good – stocks, real estate, crypto, etc.

And someone might say oh stocks is better than gold, or crypto is better than gold. In a pure return % sense that might be true, but if volatility is also considered, then a combination of gold + stocks/crypto actually yield better return-to-risk (ie sharpe ratio) and by using leverage it’s feasible to get returns better than un-leveraged stocks/crypto portfolios.
(of course you can leverage a pure stocks/crypto portfolio too but you run higher liquidity / bankruptcy risks)

didn’t think I’d write such a long comment haha … might be worth making a separate post in the group for discussion 🙂