Gold bubble a long way off

In a recently released report, Gold: alternative investment, foundation asset, the World Gold Council makes a case for mainstream investors adding gold to their portfolios, whether those portfolios hold traditional or non-traditional investments, such as private equity, hedge funds, real estate and commodities.  The WGC’s work suggests that holding gold to as little as 3.3% to 7.5% of the portfolio enhances portfolio performance.

The report’s Executive Summary concludes with “. . . in general, portfolios which include gold tend to perform better (by increasing gains or reducing losses) that those that do not hold gold, during periods of financial uncertainty.  In other words, gold acts as a cost-effective form of protection that does not affect and sometimes benefits long-term expected returns, while reducing risk when it is needed most.”

While most gold bugs would scoff at holding only 3.3% to 7.5% of their assets in gold, it is important to know that the World Gold Council is about as mainstream as you can get and still advocate investing in gold.  The World Gold Council boasts (on its website) of being: The market development organization for the gold industry and the global voice of authority for gold.

Although funded primarily by the gold mining industry, the WGC advises governments, central banks, sovereign funds  and investment firms as to the benefits of holding gold bullion, and it does so with immense credibility.  When it comes to gold, the WGC provides the final answer to many questions.

The recommendation that portfolios hold only 3.3% to 7.5% in gold probably seems ridiculous to most readers of this blog, but the important thing to remember is that this gold bull market , now in its 11^th year, will not peak until gold becomes mainstream.  Gold will not be in a bubble and that bubble will not pop until Wall Street makes gold a mainstream investment, as it did dot-com stocks in 2000 and the housing industry in the mid-2000s.

When gold topped $1900, there was much talk about gold being in a bubble.  With the subsequent decline, many gold naysayers declared themselves vindicated.  Gold denigraters remain wrong.  Gold is a long way from a bubble.  That the World Gold Council has to urges Wall Street to invest as little as 3.3% in gold is evidence just how far away gold’s top is.

The complete WGC report can be found here.  You will have to register to gain access, which involves only supplying a user name and email address.  Do not worry about spam when giving your email address to the WGC.  You will receive few emails, usually when the WGC releases a new report.