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5 Things Everyone Gets Wrong About Gold as a Hedge Against Stock Market

In times such as the present when you have a substantial portfolio of stocks is nerve-racking. The market for equity has set new records, however, the economic rationale for these price increases seems rather shaky.

Old-timers who managed funds in the midst of Black Monday (1987) and the Dot-com bubble (1995-2000) warn about the possibility for similar events in the future in the same way that Wall Street encourages retail investors to take on more risk.

Headline investors like Ray Dalio and Mark Mobius are publicly stating that investors should be able to have 5-10% of their investable funds that are held physically Gold. In the Ray Dalio All-weather Portfolio as an illustration, has the 7.5 percent allocation to gold.

These highly successful investors are recommending physical Gold to hedge against the market for stocks while noting the possibility of currency devaluations aftermath of massive pandemic related fiscal and monetary stimulus.

In this article, we'll discuss various strategies for hedging an investment portfolio against stock market and Inflation risk.

Recommendations on how to circumvent against Inflation

There are several options that are typically thought of as in the category of inflation hedges.

Precious metals (Silver particularly)


Real estate investment trusts (REIT)

Treasury Inflation Protected Securities (TIPS)

Like all potential Investments like all investment options, each of these asset classes comes with advantages and disadvantages that an investor has to consider.

Precious metals

Purchasing and holding physical Gold or Silver can be a time-tested method for hedge against Inflation. Precious metals can also be a good option to diversify an investment portfolio and protect against the risk of stock market volatility.

During the Great Inflation of the 1970s (1963 until 1980) Gold rose by 1600 per cent and Silver rose by 2700%. Investors with foresight could purchase Silver for $1.29 as well as the Gold for 35 cents an ounce by 1963. In 1980 , the smart investors could take profits on their investments at $50 or $800 per one ounce.

The ideal method of investing to invest in Silver and Gold is to take personal possession of those Precious metals and save them locally.

There is also the possibility to get exposure to the metals through ETFs and Trusts (e.g., GLD), Gold Trusts (e.g., GLD), silver Trusts (e.g. SLV, for instance), and certificates programmes (e.g., Perth Mint).

Investors who have tax-advantaged retirement savings can invest in physical Precious metals using these funds by opening an self-directed Gold IRA. Tax-free and tax-deferred Retirement accounts can be moved in Gold IRAs.


Commodities can be considered real asset, such as orange juice or steel rolled. During inflationary times prices on real commodities tend to rise.

From an Investment perspective There are two types of commodities you need to keep in mind: hard and soft.

Hard commodities must be mined or dug and this is the case for precious metals, copper, aluminum, crude oil, natural gas, etc.

Soft commodities can be found in the ground or are walked across it on four hooves. Corn, wheat live hogs, as well as feeder cattle are all examples of the soft commodity.

ETFs make it easy to make investments in hard and soft commodities.

Futures on commodities aren't recommended due to the risk of assignment. Options on commodity futures can be a possible stock market hedge but these securities represent a high level of risk.

The Real Estate Investment Trust (REIT)

REITs are Investment vehicles that manage pools of income-producing real Estate. Inflation tends to push both rents and prices for property higher.

Investors buy individual shares of REITs to get exposure the Real Estate without taking on the responsibility of finding or financing the properties the properties.

Residential REITs are specialized in apartments, single-family houses mobile homes, single-family houses, and student housing. Commercial REITs concentrate on retail stores, office buildings hotels, and other types of commercial properties that earn income.

A small portion of REITs are focused on the holding of mortgage debt (Mortgage REIT) while the majority of REITs focus on holding properties that generate income (Equity REIT).

Treasury Inflation Protected Securities (TIPS)

TIPS which is also known as Treasury Inflation Protected Securities, provide the security of an Treasury bond with the assurance that the purchaser will get at the very least their initial Investment back.

The principal value of the TIPS bond is adjusted to reflect that of the CPI (Consumer Price Index) over the duration of the bond. The annual coupon payment is based on the current principal value of the bond, so investors receive an inflation-adjusted amount for their TIPS.

As an example, consider an investor with one year's worth of TIPS that have a 1% coupon rate. If the rate of inflation (as determined by the CPI) is 4.4%, the $15,000 worth of bonds are adjusted upwards to $15,600. The bond's coupon amount is then calculated based on the adjusted value of the principal so the investor receives $156 interest for the duration of the year.

Notice that the investor's original investment (the principal of the bond) is being Inflation-adjusted in this example but the investor has locked themselves into a 1% interest rate in an environment that has higher rates of coupon likely to be available.

For investors who are cautious about risk, the lower return from TIPS may be acceptable for the perceived safety of the US Treasury bond.

Recommendations on how to evade versus Inflation

We have to be careful when we start talking about the best of anything in the investing world. The best hedge against Inflation is likely to be different for a 25-year old than for a 65-year old.

An investor's tolerance for risk also affects what their ideal Inflation hedge will look like. A risk-averse investor may avoid commodities because of volatility while the risk-tolerant investor loads up on physical Silver and shares of energy ETFs.

Why is Gold a hedge in contrast to Inflation

Gold is perceived as a hedge against Inflation because the price of Gold increases as the purchasing power of the currency in which the metal is priced erodes.

The price of the gentleman’s dress is used to illustrate an example of Gold acting as an instrument to hedge against Inflation.

In 1922, a tailor-made wool suit (a tailor-made suit) and an extra pair of pants cost about $25 US Dollars and Gold was priced at $20.67 per an ounce.

Fast-forward to today and an equivalent manaEUR(tm)s suit will cost between $1500 and $2000. Gold being sold for about $1800 an ounce.

That's 100 years where one ounce of Gold has protected its holder from the destruction of Inflation.

Exactly how to invest in Gold

There are numerous options you can invest your money in Gold. Like we said, the ideal Gold Investment involves purchasing the physical metal and keeping it in a location that has the ability to access it.

Once the foundation is set There are a variety of methods to make investments in Gold:

Physical Gold Trusts and ETFs (e.g., Sprott Physical Gold Trust PHYS, or GLD)

Mining stocks, warrants, and options

Self-directed Precious metals in IRAs (Gold IRAs)

Gold futures

The options available on Gold futures

Physical Gold Trust

These Physical Gold Trusts like GLD (SPDR Gold Shares Trust) are fraudulent because they give investors the illusion that they own physical Gold but all an investors actually own is shares of a security that is (supposedly) connected in some way with physical Gold.

It is important to recognize the fact that Gold Trusts are not actually securities, they are Gold itself. The Trusts are derivatives from physical Gold but they don't provide an buyer any ownership interest in the actual metal.

Gold Trust shares can supposedly be redeemed for physical metal but only investors with a good financial position are in a position to do this.

The Sprott Physical Gold Trust (PHYS) will require that investors redeem shares in 400 oz increments. With Gold at $1780 an ounce that means an investor will require 7112,000 dollars worth of PHYS prior to when it's feasible to receive the actual metal.

GLD which is the SPDR Gold Shares Trust, has an even higher threshold for taking delivery of physical Gold.

Investors who are qualified can redeem 100,000 shares of GLD at any time and request delivery of physical Gold. at today’s rate (01/07/2022) it is an Investment of approximately $16.8 million US dollars.

Self-directed Precious metals IRA

Precious metals IRAs offer investors a way to establish a Gold stock market hedge using tax-advantaged Retirement money.

Unless an investor is prepared to pay the 10% penalty for premature withdrawals of their tax-deferred , tax-exempt funds (401K, 403b Traditional IRA and so on. ), the money is basically locked in a type of IRS-approved investment vehicle up to age 59 A 1/2 .

Gold IRAs fall into this category of approved Investments and allow investors to gain the protection and security that comes with physical Gold ownership without having to pay any tax or penalties in the process.


In this short piece, we've focused on using Gold to hedge against stock market risk caused by Inflation.

Stock Portfolios are exposed to other risks in addition to Inflation. There is a risk of equity as well as liquidity risk and currency risk that investors need to be aware of and potentially, to protect themselves against.

Fortunately, Gold is

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