Cartoons can simply entertain the kids when we don’t want to be bothered. Or, cartoons can actually teach us something. Here is one of the latter:
This cartoon shows a bear market on the left and a bull market on the right. The bulls have small gold rings in their nose, while the bear has large solid gold teeth, containing more gold than mere gold rings.. The message is that gold may be more valuable during a bear market, but it also has a place in a bull market. Rising gold prices are sometimes cited as an indicator of an approaching bear market (and prices have been rising this year). As the value of your portfolio falls during a bear market, gold will increase and become a larger and larger portion of that portfolio.
Some investors believe every portfolio should have 5% gold. After all, because gold is both a commodity and a currency, it can be included in either asset class. So, why do so few portfolios contain gold? I think the reason is that the lunatic-fringe of investors always seem to be occupied by “gold-bugs,” people who are irrationally exuberant about gold. As we are all judged by the company-we-keep, who would want to be judged by any association with the breathless gold-bugs on the lunatic fringe?
My thought is that gold prices are too emotional and irrational to be recommended . . . but should not be discouraged either. If it gives an investor comfort, 5% is not an unreasonably large share of the portfolio.