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Wednesday, July 6, 2011

How much gold do you need?

Your views on gold are directly dependent on your views on the world economy - which are directly dependent on your views on life in general.

Take the image above. Let's say this is a representation of the permanent state of a world economy built on debt. The tight rope represents the debt issued by the countries of the world in order to pay the expenses of the world governments: roads, war, safety nets, postal systems, schools, defense systems, police etc. etc. The Tight Rope walker represents the financial system: banks, corporations, workers, etc.

Let's say this tight rope walker has been walking over the tight rope for fifty years. He is able to take short brakes to sleep, eat, and relieve himself. But other than that he must keep walking. For fifty years he has not fallen, though he's come close many times.

A) Would you say that because he has never fallen, in all likelihood his skills will increase over time and he will always manage to successfully walk the tight rope?

B) Or would you say that as he get older and weaker, and the rope get more frayed - or maybe a big gust of wind comes along that he's just not ready for - and the likelihood increases every day that he will fall?

If you, like 95 percent of respondents, answer A, you might want to get about 2-3 percent of your liquid assets into gold - just in case. It probably won't hurt much in any event. Buy on dips and Consider it part of the "asset allocation" that your investment adviser touts.

If, like me, would answer B, the answer is you should get as much of your assets into gold as you can without affecting your immediate lifestyle. You need to pay your bills in dollars - for now. Otherwise Gold bullion, and other types of high end commodities should comprise the bulk of your estate. Diamonds, Old Master Paintings, Farm Land, Historical medals and documents, Rare coins, whatever you understand and are comfortable with.

And in buying gold the last thing your worry about is price. What you want is ounces. Count your ounces. Price is for those who subscribe to scenario A.

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