2 reasons to increase your gold portfolio allocation now

The price of gold surged in 2023 and climbed above $2000 for the third time since 2020. New all-time highs are in grasp, but many investors fear buying gold at current levels for various reasons.

One, for example, is that gold might have made a triple top pattern above $2000. But triple tops rarely hold, and even if they do, the market usually builds energy later to overcome horizontal resistance.

So why should investors increase their gold portfolio allocations now? Here are two reasons to do so:

• Gold outperformed major currencies in the last 22 years
• High inflation is here to stay

Gold outperformed major currencies in the last 22 years

Many investors have argued that gold has lost its place in a portfolio. That was specifically the case in the aftermath of the COVID-19 pandemic, as inflation surged everywhere.

But gold did its job for the portfolio for a long time. A quick look at how gold performed in the last 22 years reveals that it has delivered better returns than various fiat currencies, such as the US dollar, the euro, the British pound, or the Swiss franc.

Gold delivered 9.3% better returns on average than a basket of nine currencies listed below. Hence,  adding gold to a portfolio makes sense.

Why now?

High inflation is here to stay

Gold is an alternative investment designed to offer a hedge against inflation. Unfortunately, high inflation is here, and the price of gold lagged behind the developments on the inflation front.

Inflation even gave signs of cooling off recently. But that should be taken with a grain of salt for the following reasons.

First, inflation is unlikely to come down that easily. For example, during the 1970s stagflationary period, it took more than ten years for inflation to come down.

Second, the period we are in experiences the longest high-inflation phase in 30 years, calculated as the number of consecutive months with above 3% inflation.

Finally, sticky prices, which make up about 70% of the CPI, remain high.