While stockmarkets try to find their ground (now) amidst the fear of failing countries, loud voices can be heard of investors seeking shelter in the safety of gold. While some like Marc Faber are asking everyone to buy more gold, there are others like George Soros who are up on the act.
Yes, you read that right! George Soros, the man who 'broke the Bank of England' by betting against the Pound in 1992, has in fact more than doubled his holding in the world's biggest gold exchange-traded fund (ETF) - SPDR Gold Trust. His fund now is the fourth-largest investor in this ETF. And these holdings were at around US$ 660 m at the end of 2009.
Ironically, while these latest figures are as on December 31 2009, Soros had proclaimed publicly last month that the yellow metal is in an 'ultimate asset bubble' ! His act of adding gold to his fund's portfolio thus leaves some bells ringing. However, this makes it amply clear that even he treats gold as a hedge against the future crisis that central banks are setting up for us.
Anyways, rather than buying gold just because someone else is buying, you would do well to simply keep a certain percentage of your portfolio in the yellow metal. Then the idea should be to rebalance this portfolio each year to conform to your original allocation.
This is simply to say that after a year in which gold soars, you would sell a portion of your stake. And after a year in which gold loses value, you would add to your holdings to get back to that original allocation. Same as you must be doing for your stocks' portfolio.
Now, you can argue about what that percentage allocation to gold should be. We suggest that it should be relatively small – around 5 to 10% of your total investments. That should be enough to provide some hedge during periods of extreme upheaval or when inflation fears spike. And this should still allow more traditional assets (like stocks) to boost your portfolio's value during the majority of time when the markets aren't in crisis.
So, continue to invest in gold. Just don't go overboard!