How to Invest in Gold for Inflation Protection

The four asset classes in a Permanent Portfolio include stocks, bonds, cash and gold. Each asset class hedges against one of the four economic conditions: inflation, deflation, prosperity and recession. We initially invest 25% each into each asset class and then re-balance the whole portfolio when one of the asset classes reaches a 35% or 15% re-balancing trigger. Gold can be a volatile asset in isolation but when its combined with the other asset classes, it has actually helped reduce the volatility of the overall portfolio. We don't buy gold because we think it will go up in price. We buy gold for the protection it can provide for the savings we can't afford to lose. You actually need to be agnostic about all four different asset classes in the portfolio; each one serves a well defined purpose and will do better than the others at different unpredictable times.

Gold is our hedge against inflation and an uncertain world. Gold prices react strongly to inflationary pressures, currency devaluations or political upheavals. We only use gold bullion in the Permanent Portfolio not gold mining stocks, other derivatives or commodities. Gold doesn't earn any income but it can produce capital gains when the other assets in the portfolio don't. Holding physical gold offshore in a vault and insured is the best way to invest in and hold gold. I also suggest that you purchase and store some one ounce gold coins like the American Eagle or Canadian Gold Maple Leaf in a safe deposit box in a bank close to your home in case of a local emergency.

Gold is the only hard asset that you can include in the portfolio, the rest are just paper assets. You never know what the future will bring, so it's always comforting to know that you have some assets you can get access to outside of the country you live in. If you don't live in the US, that country could be a good location to store gold since they are a stable country and have a great reputation for storing gold for investors. In many situations though it may not be feasible to hold physical gold, like in your retirement account for example or it's just not convenient for you. In those cases a gold exchange traded fund (ETF) will be your best option.