Gold Asset Allocation: Gold Allocation in Portfolio

What Should be the Ideal Gold Allocation in anyone’s Portfolio? In the recent past (Since 2004), The Gold as an asset class appreciated a lot. Gold has given 2 digit compounded annual returns since last couple of years.

And everyday I receive queries like “Should I Sell my Stocks & Invest only in Gold”, “Should I increase the Gold allocation of my portfolio?” and many other queries like that.

Well, as a rule, The Gold Allocation in your Portfolio should not be more than 10% of your Total Portfolio Net Worth, No Matter How much the Gold appreciates.

Remember the above simple but very important rule of gold allocation. We have a past performance record of gold of more than 500 years back. And this record shows that, traditionally gold has just beat the inflation in the long run. Gold is not the asset class for the Capital Gains.

It can just protect your wealth from the Inflation. For Capital Gains, the Best Asset Class is Equity. Since last couple of years the gold price has been rising tremendously because US Federal Government is printing US Dollars out of thin air only since last 3 years.

US Government is now printing money in the true sense and thus, the newly printed dollars are diluting the purchasing power of the existing dollars circulating in the economy which drives the gold prices higher.

After 2007, US Government has increased its Monetary Base (Money in Circulation) from $ 800 Billion to $ 2 Trillion. This means that US Government has doubled it’s monetary base and this is the reason why gold is also appreciated this much in past 2 years.

The newly printed dollars in circulation have diluted the purchasing power of existing dollars in the circulation. Thus, Gold price is sky high.

So don’t make any mistake like allocating all of your money in Gold only. Invest in Gold but do not invest more than 10% of your total portfolio net worth in Gold.