As I postulated here I made the decision on Wednesday to buy more gold. As with the last time I bought gold, the buy was not big at 0.6% of my total retirement investing assets. The trade was made by moving cash to gold rather than with new money. At the close on Friday gold had reached £733.01 (Note: I have a gold priced in GBP widget on the right hand side bar widget of this blog as I follow it closely) which means that even allowing for buy/sell spreads and trading costs I am up on this buy decision by 2.5%.
So when weighing up the buy what were the pro’s that I could come up with:
1. My desired low charge portfolio has an asset allocation dedicated to commodities and more specifically to gold of 5%. At my last update my gold holdings were only 3.2% of my portfolio. This was too low. Following the trade I am now at 3.9% today.
2. Gold in 1983 reached a real monthly average price of £840.89 and in 1980 reached a real monthly average price of £1,043 so we are not near previous highs.
3. The Bank of England seem to have decided that inflation is a good thing with the retail prices index (RPI) moving this month to 3.7% with no action. As I described here this means that it is impossible for me to get a real return on my cash.
The con’s that I could come up with were:
1. If gold was on its GBP trend line it would have a real price of £248.
2. The average real (after inflation) price for gold from my data set since 1979 has been £429. This suggests that gold is currently well over what could be described as fair value.
As always DYOR.