You Can Always Go to Gold

For five millennia, gold has stood for money and maintained its purchasing power over time. Gold, above all else, is an accepted standard of value that seldom depreciates. In fact, an ounce of gold has maintained the approximate same value since pax romana.

An ounce of gold has always been able to purchase fine set of clothes. If you look at what an ounce of gold bought 100 years ago, it bought a nice set of clothes. Today $880 -- the current price of an ounce of gold -- still buys a fine set of clothes.

Given the volatile market, gold and its consistency in value is a reassuring investment. Gold is in about the fifth inning of a bullish cycle. The good news is that the gold market hasn't reached its full appreciation. You still have time to catch some upside and insulate your net worth.

Before analyzing the gold market, let's take a quick look at where we are in the cycle. In broad terms, tangible and financial assets oscillate in 20-year cycles of outperformance and underperformance. It's always wise to overweight investments in the asset classes in secular bull markets. Tangible assets have been in a secular bull market for the last decade. Despite this year's horrific declines, the bull market in gold remains intact.

With stocks falling to and past reasonable levels in the shadow of the credit crisis and impending global recession, the best bull market around remains precious metals. Gold and other precious metals are tangible assets, similar to real estate, commodities, precious metals, gems and collectibles. Financial assets are IOUs, either debt (bonds) or ownership interests (equity).

I believe that bonds and equities will continue to deliver below average returns over the next couple of years and therefore, most investors should keep some of their net worth in gold. Based on the patterns of historical cycles, I won't be surprised if gold climbs to $2,000, $4,000, or even $5,000 per ounce in the decade ahead.

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