How Much of a Good Portfolio Should Be Gold?

Long-standing correlations have broken down, according to one investment firm. Therefore, the new paradigm shift in the gold market means that investors must follow a new playbook.

This is a solid case for gold!

On Friday, Incrementum AG published its annual In Gold We Trust report. The report analyzes the critical elements of the precious metal. Analysts led by the firm’s fund managers Ronald-Peter Stöferle and Mark J. Valek say structural changes in the global economy have revived demand for gold as a neutral asset on the world stage. In an interview before the report’s release, Stöferle gave an example of the changing landscape. In this context, the analyst shares the following assessment:

It turns out that inflation is not just temporary, it’s pretty sticky. A key part of the report is that the Great Moderation period is over and inflation volatility will continue to be an important issue. Therefore, we think this makes a solid case for gold.

Gold prices will reach $4,800 in the next six years!

In addition to the threat of inflation, rising debt around the world and geopolitical uncertainty questioning the role of the US dollar as the world’s sole reserve stream, the flow of physical gold from Western investors to Eastern investors is creating new long-term trends in the gold market, the report said. The Liechtenstein-based fund predicts gold will reach $4,800 in the next six years.

It wouldn’t be a surprise to take profit in gold now!

Ronald-Peter Stöferle sees strong long-term potential for gold. But even so, he says, investors should expect periods of volatility as the market establishes higher ranges. However, some consolidations will not impact the broader landscape. “The gold price has risen almost $600 since its lowest level in October 2023,” analysts wrote in the report. Therefore, taking a profit would not be a surprise,” he says.

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Gold should normally be around $1,700, but…

According to the report, the most compelling evidence of gold’s new playbook this year has been its unprecedented performance in the face of significant traditional headwinds. The Federal Reserve is continuing its most aggressive tightening cycle in 40 years. However, cryptokoin.comAs you follow from , gold reached record levels this year, exceeding $2,400.

“According to the old gold playbook, gold should be around $1,700 given the decline in ETF holdings,” analysts say. Analysts say the growing influence of emerging market central bank demand and strong retail demand in key markets such as China and India are pushing Western investment demand into the background. In this regard, they make the following statement:

The realignment of the international economic and power structure, the dominant influence of emerging markets on the gold market, reaching the limits of debt sustainability, and possibly multiple waves of inflation are causing gold to appreciate. This phase will continue for a while until a new balance is established.

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How much gold should a good portfolio have?

Western investors have been reluctant to accept gold’s new playbook because they are focused on high opportunity costs. However, Incrementum says it is only a matter of time before this trend changes. Analysts state that rising government debt will continue to put pressure on the bond market. They also expect it to end the traditional 60/40 portfolio allocation. According to analysts, we are in an era of excessive debt and thus a permanent risk of latent inflation. So there’s one big loser among all asset classes: bonds.

Incrementum says that in this new period, investors should consider creating a more balanced portfolio. This includes holding up to 25% physical gold. In this context, analysts make the following assessment:

Given our skepticism towards government bonds, we assume that an increasing number of market participants will place greater emphasis on both safe-haven gold and performance gold in the future. In particular, we think that a ratio of up to 15% safe-haven gold and up to 10% performance gold is advisable in a portfolio with a long-term investment horizon. Safe haven gold is a safe and liquid asset used mainly to hedge against economic and (geo)political instability, high inflation and worst-case scenarios.

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