The case for gold:
Gold should never be more than 20% of your portfolio. Just like bonds I would hold more in retirement than during working years. I currently have 10% of my portfolio in physical gold ETF’s such as IAUM and GLD
The purpose of gold much like bonds to act as insurance on equities in case the stock market crashes. During recessions and periods of high inflation people flee to gold to preserve value in a physical commodity. While the S&P 500 has a superior return to gold from the end of the gold standard to today (1971-2025), a portfolio of 90% S&P 500 10% Gold rebalancing once a year has a superior total return to a portfolio of 100% S&P 500.
There are two main arguments against gold I’d like to address:
1. “Gold has extended periods of decline/stagnation followed by short periods of rapid growth.” Gold had a monumental price increase in the late 1970’s stagflation peaking in 1980. Gold then declined in value for 20 years before finally turning around in 2000.
The reason why this decline in gold happened was an extended bull market with no major recessions or economic crisis. Gold declined in value, because equities did magnificent. In the 2000’s, the lost decade of stocks, Gold was amazing.
If your gold has a shit return over a 10 year period, you should rejoice, because that means your equities did amazing. Gold serves its purpose as insurance against a stock market crash.
2. “Gold is pure speculation, it has no intrinsic value.” This is not true:
Golds uses:
49.2% Jewelry
19.26% Investment (bars/coins)
17.2% Central banks
12.14% industrial
2.2% unaccounted
66.4-68.6% of gold has an actual use. Jewelry is a luxury good. It’s not speculation. The vast majority of people who buy jewelry don’t do so as an investment. It’s usually much cheaper to go with an ETF or physical gold. People buy jewelry not to sell it at a higher price but to flex their own wealth and status. As long as there are men who want to impress pretty girls, there will be a demand for jewelry. As long as there are people who want to look wealthy and important, there will be a demand for jewelry.
2/3 of all economic growth is due to technology. As people get wealthier they spend more on luxury goods. Luxury goods as a % of world GDP has only increased with time, because the world has gotten wealthier.
As for the industrial uses of gold: There is an ever increasing demand for computer chips and thus an ever increasing demand for gold.
Gold is also used in medical devices an aging population means more gold. As nations get wealthier the % of their GDP that they spend on medical care increases meaning yet again we have an isn’t save where economic growth ensures gold growths at an even faster rate than the economy.
