Table of Contents:
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Why Diversification Includes Gold
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Gold as a Store of Value vs. An Investment
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The Inflation Shield: Protecting Your Purchasing Power
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A Proven History: Trust Earned Over Millennia
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The Central Bank Signal: Loading Up on Real Assets
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Dedollarization: The Shift in Global Reserves
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How High Can Gold Go? Calculating the Dollar Devaluation
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Exit Strategy and Disadvantages of Gold
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Conclusion: The Golden Rule of Diversification
1. Why Diversification Includes Gold
In an era of economic uncertainty, financial security is paramount. While many focus on the stock market, true diversification requires holding assets that provide peace of mind. Investing in gold is not about chasing “get-rich-quick” returns; it is about building a foundation that survives systemic failures.
2. Gold as a Store of Value vs. An Investment
Technically, gold should be viewed as a store of value rather than a traditional investment. While investments are expected to generate a future return (more money), gold’s primary purpose is wealth preservation. It is a long-term holding designed to ensure that the value you have today is still there decades from now.
3. The Inflation Shield: Protecting Your Purchasing Power
Gold is the ultimate protection against inflation. Consider the “Home-to-Gold” ratio:
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1980: A median US home cost $70,000. With gold at $614/oz, it took 114 gold coins to buy a house.
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2025/2026: A median home costs $400,000. With gold at $3,400/oz, it takes roughly 117 gold coins.
Despite the dollar price skyrocketing, the amount of gold needed to buy a home remains nearly identical. Gold protects your purchasing power while the dollar loses its value.
4. A Proven History: Trust Earned Over Millennia
Gold has earned trust over thousands of years, from Ancient Egypt to the Roman Empire. In the last 25 years alone, gold has frequently outperformed the S&P 500. It is an asset that has stood the test of time because it has “always worked.”
5. The Central Bank Signal: Loading Up on Real Assets
The world’s most powerful financial institutions—central banks—are loading up on gold. They aren’t printing money to buy crypto or silver; they are buying gold. In recent years, purchasing activity hit record highs, and 95% of central banks expect reserves to rise even further.
6. Dedollarization: The Shift in Global Reserves
We are witnessing a massive trend of dedollarization. In the early 2000s, the US dollar made up 60% of global reserve assets; today, that has fallen significantly. Central banks are diversifying their holdings at the expense of the US dollar, moving toward gold as the premier safe-haven asset.
7. How High Can Gold Go? Calculating the Dollar Devaluation
Gold doesn’t necessarily “go up”; rather, the dollar devalues. If we assume an 8% annual inflation rate, gold could theoretically reach over $7,000 per troy ounce in the next decade. Volatility could easily push these numbers even higher if central bank demand accelerates.
8. Exit Strategy and Disadvantages of Gold
Owning gold comes with specific challenges:
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Physical Gold: Risk of robbery and the cost of storage/insurance.
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Paper Gold (ETFs like GLD): Risks of government confiscation or manipulation.
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Non-productive: It doesn’t pay a dividend (though advanced investors use covered calls to generate income).
The Exit Strategy: Sell only when the government demonstrates fiscal responsibility and balances the budget—a probability close to 0% until a major system failure occurs.
9. Conclusion: The Golden Rule of Diversification
Gold is the asset you worry about the least. While you shouldn’t go “all-in,” maintaining a significant allocation in both physical gold and gold-backed equities is essential for anyone serious about wealth preservation.
