An investor may choose to invest in gold solely to hedge against inflation over the years and to have a source of economic security in the event of collapse of the economy. Another investor may choose to use gold to diversify an investment portfolio as gold tends to go up in value as investments denominated in US dollars go down. On one hand the proper amount to invest in gold has to do with personal security in troubled economic times On the other hand the proper amount to invest in gold depends upon how much will be needed to balance the "paper" risk in an investment portfolio. That was the long answer. The short answer is 20-30%.
Why 20-30%? This number comes from experts who have looked at how much money invested in stocks, derivatives, and other investments tends tend to be lost during a recession, when the dollar devaluates, and during other economic circumstances. During these same times gold tends to rise. During the last ten years or so there was the burst of the dot com bubble and the recent market collapse as well as the deflation of the housing bubbles in many American cities. During this time gold became four times more valuable. The calculations of experts tell us that the addition of 20-30% physical gold to a balanced “paper asset” portfolio will tend to cover losses of these assets with gold's gains.
Many investors believe that the US dollar will continue to slide, taking dollar denominated investments with it. For these investors gold assumes a greater role in long term investment. Certainly it is hard to argue against the fact that rare gold coins held for many years can substantially outperform event bullion, not to mention the Dow Jones Industrial Average.
Smart gold investing has to with being clear about investment goals and investment risks. The how much invest in gold depends upon overall investment strategy and goals.
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