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I am the co-author of The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy from John Wiley & Sons. I invest using the Permanent Portfolio strategy and run a blog relating to that topic.
My company:
Crawling Road
My blog:
The Crawling Road
My book:
The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy
  • Gold: Not A Stock And Not A Bond. 0 comments
    Mar 6, 2012 1:20 PM | about stocks: GLD, SGOL, PHYS, IAU, GTU, CEF

    Just some quick notes because the "gold is worthless compared to stocks" debate has heated up again in the news. Since the Permanent Portfolio owns 25% in gold bullion I thought I'd comment a bit on this subject.

    Let's just get this out of the way: Gold is not a stock or bond.

    This is not groundbreaking wisdom, it is plainly obvious. Gold will not have interest or dividends like a stock or bond. It also will not multiply on its own if left alone like a stock or bond. Some will say that is bad.

    Yet I look at an asset like gold and see hundreds of years where it has maintained purchasing power. The overwhelming number of company stocks over that time are no longer here. Heck, the overwhelming number of governments over the past two centuries are no longer here so their bonds probably didn't pay you either.

    So I own some stocks, own some bonds and own some gold. I realize each has a weakness but also has a strength. Gold does not multiply in value on its own, but it's a heck of a good place to park bond and stock profits if you want that money to be around no matter what is going on. That alone makes it unique enough to consider owning.

    The anti-gold feeling I often see is really a more modern American trait. We haven't had a serious war inside the borders for over 150 years. The currency has been fairly trouble-free. Pretty much we're an outlier if you look at history in terms of stability and continuity. But if you talk to people in other countries that have had currency and government problems they think not owning gold is the bad idea. Just depends on your life experiences I suppose.

    If you want gold, hold it in a balanced and diversified portfolio along with stocks and bonds. If not, then don't. But pretending that stocks don't have bouts of mania followed by long periods of bad returns isn't realistic either. Neither is saying that gold is worthless. The idea that gold is worthless flies in the face of human history and just isn't true. I just accept that gold is worth something historically and figure out how I can use it as an effective tool in a diversified portfolio. To that end it has worked great and I have no complaints.

    Despite my postings about gold on this blog and elsewhere, people may be surprised to hear I don't really want to see gold go up in price. I'd rather the stock and bond markets be doing well because they are generating real growth and value to the economy. An escalating gold price usually means economic trouble and problems for many people and nobody wants that.

    But sometimes what we want and what actually happen are two different things. Because of that I own some gold along with my other assets and don't get all religious about this stuff. It's funny reading some of the things people write about investing. Everyone has their own bias and feelings about what the future may or may not do. I suggest trying to stay neutral and own a little bit of everything so you're protected no matter what happens.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The Permanent Portfolio holds 25% in gold as part of the standard allocation.

    Stocks: GLD, SGOL, PHYS, IAU, GTU, CEF
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