Gold is frustrating – but it’s still worth holding
It's been a frustrating time for investors in gold. But the idea that you should always have a bit of physical gold in your portfolio and just hope that it doesn’t go up remains a sound one.


As regular readers will know, we’re long-time fans of gold here at MoneyWeek. But there’s no doubt that it can be a frustrating asset. As Dominic says in this week’s cover story, the idea of owning gold as “portfolio insurance” can sometimes feel like poor consolation for those who would rather see it (and the shares of the companies that mine for the stuff) shooting the lights out. I can sympathise – I still hold gold mining funds in my portfolio in the expectation that they still haven’t seen their highs for this cycle, but for all my bullishness, I’d be deluded not to acknowledge that if I’d sold them a year ago I could be buying back in at about a third less now.
Yet the insurance argument – that you should always have a bit of physical gold in your portfolio and just hope that it doesn’t go up – remains a sound one. And while I don’t want to be overdramatic, there are some particularly pertinent reasons right now to believe that insuring against nasty surprises is a good idea.
It’s nice to have some insurance
For a start, we’ve just been through one big surprise in the form of the pandemic and it seems we may still have a while to go before we can put that behind us. The economic impact of all the money printing we’ve been doing is not yet clear and nor is it clear how much more might have to be done. So holding a bit of gold just in case rampant inflation does materialise seems only sensible – particularly as the latest Bank of America global fund manager survey shows that managers’ inflation expectations have plummeted – this month, just 4% of those questioned said they expect consumer price inflation to be higher next year, compared with a peak of 93% in April.
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And while I’m sceptical about the idea that the rapid fall of Afghanistan, awful situation though it is (see page 8), represents America’s “Suez moment”, any more than did Libya or Vietnam or any number of other foreign-policy misadventures, I do think it’s fair to say that the geopolitical situation is more complicated and overtly antagonistic than at any time since the Berlin Wall fell. Geopolitics rarely matters to markets, but on those occasions when it does, it’s nice to have something in your portfolio that goes up rather than down.
Finally, looking purely at markets, as GMO’s Jeremy Grantham told Merryn in the podcast a couple of weeks ago (don’t miss that one – listen to it here if you haven’t done so yet) the reality is that from bonds to house prices to US equities specifically, assets are mostly expensive. That doesn’t mean that everything is going to collapse imminently by any means. But it does imply a fragility that might make it worth taking steps to protect yourself and your wealth against.
Don’t just take our word for it. Palantir Technologies – a “big data” analytics company with a background in counter-terrorism and cybersecurity – has just bought $50.7m-worth of gold bars for precisely this reason. The company has the bars stored somewhere in the northeastern US and is “able to take physical possession... at any time with reasonable notice”. Palantir’s chief operating officer Shyam Sankar said that “you have to be prepared for a future with more black-swan events”. I’m sure it’s good branding for a slightly secretive security firm to be hoarding gold – but I can’t disagree with the sentiment.
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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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