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GOLD HAS NEVER been an investment I’ve been comfortable with. The problem: It has no intrinsic value. Unlike a bond, it doesn’t pay interest and, unlike a stock, it doesn’t have earnings or pay a dividend. Instead, gold has value mostly because the supply is limited and because owners have faith that others will also view it as valuable.
And yet, today, I consider myself a fan—though I favor owning gold-mining stocks, rather than the metal itself. I still have no firm sense for what gold is worth. But gold—and gold-mining stocks—have been crushed over the past four years, so they’re certainly better value than they were. More important, gold has often, but not always, fared well when the broad stock market is suffering.
You might earmark 2% or 3% of your portfolio for a gold-stock mutual fund or exchange-traded fund, and then regularly rebalance back to that target percentage. If global stock markets sink and gold rallies, you’ll be happy for the added diversification.
What if gold stocks continue to slide? There’s a silver lining: Continued poor performance likely suggests that the broad stock market is performing well–and any loss on your gold stocks will probably be more than offset by gains in the rest of your portfolio.
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