How Much Gold Should You Own?

2003-AUG-22

A very interesting article was posted yesterday on TheStreet.com.
http://www.thestreet.com/markets/rebeccabyrne/10109169.html

Entitled "Factors Align in Gold's Favor", reporter Rebecca Byrne touches upon one of the most frequently asked questions I receive, namely, how much gold should someone own.

It's an important question, but also a tough one to answer because each individual's circumstances are different. Therefore, it is inappropriate to make a sweeping generalization to answer this question and expect it to apply to each person's unique needs. But because this question is important, it needs to be addressed anyway.

Here's what Rebecca says:

"Continued gold market reform is expected to enhance China's gold demand," the firm [Merrill Lynch] said in a recent report. Merrill and Goldman Sachs now recommend a 5% weighting of gold in client's holdings.

She doesn't provide more details about Merrill's and Goldman's recommendation, but this 5% number is consistent with the traditional view of savvy Swiss bankers who say that it is prudent to have 5%-10% of your portfolio in gold.

I have found over the years that if there is any one right strategy about managing your portfolio it is to achieve diversification, and gold is an important diversifier. But remember where gold bullion fits into your portfolio.

There are three categories: cash, stocks, and bonds. Importantly, bullion is cash. Gold mining companies of course fit into the stock category. There is usually more leverage in these shares than in bullion, but there is also more risk. For this reason, the decision to buy gold mining stocks (an investment decision) is different from the one needed to buy bullion, which is a liquidity decision. In other words, how much of your liquidity - your cash - should be held in bullion.

I am not a financial planner, so I am not qualified to give this type of advice. So instead, don't rely upon me. Rely upon Merrill, Goldman and those savvy Swiss bankers. Own bullion equal to at least 5% of your portfolio.