Why I Now Hold 20% of My Portfolio in Gold

Why I Now Hold 20% of My Portfolio in Gold
Gold bars remain the ultimate hedge against market turmoil and currency instability.|©iStock/brightstars

For most of my career as an economist and financial analyst, I’ve abided by the guideline that says you should hold about 5% of your assets in gold.

Not anymore. I hold nearly 20% now.

You might think that’s because the gold price has increased so much in the last 18 months. But that’s backwards.

The reason to increase your gold holdings is not because the price is high. It’s because of what that price signal is telling you about everything else other than gold.

The truth is that all major investors in the world today, including big financial institutions, company treasurers, family offices, and—above all—central banks feel that we are in a situation of extreme risk when it comes to financial assets like stocks and bonds. They’re loading upon gold in response to this risk, and that’s why the price is high.

Two Year Gold Price

The risk profile is unusual, because Treasury bonds which—usually the preferred safe-haven asset—are now considered too risky thanks to U.S. policy uncertainty.

The upshot is that the reason to earn gold isn’t because of the price action, but because of what could happen if you don’t use it as a hedge against a potential financial crash.

I’m sure you’re asking yourself how to go about owning gold. After all, there are so many options, especially floating around the Internet.

Here’s the straight dope from someone who’s been paying attention to the gold market for years:

1. Physical Bullion (coins or bars)

You own the metal itself — coins, bars, or ingots held personally or in a vault.

Pros:

  • Direct ownership: You control the asset; no counterparty risk. If the banking system fails, you still have your gold.

  • Privacy: Depending on the jurisdiction, transactions can be private and off-grid.

  • Tangible asset: Holds value regardless of digital systems or paper markets. You’ll be able to use it in a pinch even if the electricity or Internet are down.

  • No management fee: Once bought, there’s no annual management cost beyond storage and insurance.

Cons:

  • Storage and security costs: You must pay for safe storage or take on theft risk.

  • Liquidity: Selling can be slower — you need a reputable dealer or bullion exchange.

  • Premiums and spreads: Dealers charge a markup (typically 3–10 %) and may buy back below spot.

  • Tax handling: In many countries, physical gold is subject to VAT or capital-gains tax when sold.

For these reasons, owning physical bullion is best for people wanting crisis insurance or distrustful of the financial system — wealth preservation, not trading.

2. Gold Certificates

You own a paper or digital claim stating you own (or are owed) a specific quantity of gold held by a custodian. There are two main types:

  • Allocated: The gold is specifically identified as yours (serial-numbered bars).

  • Unallocated: You hold a claim on pooled metal — like a bank deposit, not tied to a specific bar.

Pros:

  • No physical storage hassle: You avoid vault logistics and insurance.

  • Easier transfers: You can buy/sell quickly without shipping metal.

  • Good for large holders: Institutions often use them for convenience and scale.

Cons:

  • Counterparty risk: If the issuer (bank or mint) fails, you could lose your claim, especially with unallocated certificates.

  • No physical access: You can’t easily withdraw bars.

  • Possible rehypothecation: Some issuers lend or leverage the gold pool, putting your holdings at risk even without your consent.

  • Opaque auditing: You’re trusting the custodian’s integrity and reporting.

Gold certificates are best for investors wanting exposure to gold with some claim to physical backing, but without storage headaches — semi-paper ownership.

3. Gold Exchange-Traded Funds (ETFs)

These are financial products that track the spot price of gold, traded like a stock. You own shares representing fractional gold holdings held by a custodian (usually HSBC, JPMorgan, etc.).

Pros:

  • Highly liquid: Buy/sell instantly through a brokerage account.

  • Low cost: Annual management fees around 0.2 – 0.4 %, no storage or transport hassle.

  • Transparent pricing: Follows spot price closely; easy to trade intraday.

  • Eligible for tax-advantaged accounts (e.g., IRAs in the U.S.).

Cons:

  • Paper exposure only: You don’t legally own the underlying gold — you own fund shares.

  • Custodian and structural risk: If the ETF structure breaks (fraud, insolvency, regulatory freeze), you can’t claim physical metal.

  • No privacy: Fully visible to regulators, brokers, and tax authorities.

  • Potential tracking errors: Small discrepancies between the ETF price and the physical spot can occur during high volatility.

Gold ETFs are best for traders, portfolio diversifiers, or investors wanting easy price exposure without physical logistics.

So, to summarize,

  • If you want real crisis insurance, buy bullion.

  • If you want convenience with some gold backing, go for allocated certificates from a reliable issuer.

  • If you just want market exposure, gold ETFs are cheap and liquid, but they’re ultimately paper claims, not metal.

As for me, right now? Bullion all the way, folks!

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