The bull market in gold really is something special, with the precious metal adding another 2.4% yesterday when the S&P 500 plunge by 0.6%. Indeed, ever since President Trump renewed his tariff threats against China last Friday, it seems like the stock market has been feeling a bit of indigestion.
In any case, volatility is back for October, and the list of risks could mount before the holiday season arrives, further bolstering the case for owning gold at the core of a portfolio. It’s hard to believe that gold, a safe-haven asset, has gained more than 122% in the past two years and continues to set new all-time highs.
That’s a profound move that has some thinking that the yellow metal is the “next Bitcoin,” rather than the other way around. Indeed, time will tell how this hot run-up in the price of gold will fare going into year’s end and into 2026. With Bank of America recently calling for gold to hit the $5,000 level next year, it’s very tempting to chase the rally in the commodity that many view as a “risk-off” play.
If there’s considerable momentum and the asset is viewed as a safe haven, what could go wrong, right? Though gold — as well as silver, which also hit a record high this week — has legs to rally higher and can continue outpacing the major indices, a potential pullback can always hit from out of nowhere, especially if U.S.-China trade relations improve. Indeed, it seems far-fetched to think that the trade war could end in the new year, but if it does, the price of gold could take a hit while stocks look to march even higher.
Ray Dalio Likes Gold, and for Good Reason
Either way, the low correlation between gold prices and the stock market is a major reason why owning gold as a part of a diversified portfolio is such a good idea. Ray Dalio, billionaire legend and author of Principles (among other must-read titles), has been a fan of gold for quite some time now. Recently, Dalio expressed his belief that having 15% of your portfolio in gold might not be a bad idea. In fact, it might be a wise move, given all the shine that the metal could add to a portfolio.
Apart from the low 0.46 beta, gold has found a way to shine, even without the market’s help. And with central banks buying up the asset while the Bitcoin (CRYPTO:BTC) trade falters, it’s not hard to imagine that the metal could continue to enjoy significant investor interest, especially now that it’s the new momentum trade in town. Personally, I think it’s just a matter of time before gold spot prices eclipse the $5,000 mark.
A 15% Allocation to Gold Seems High, but It Might not Be in Today’s Climate
While Dalio’s 15% gold allocation may seem too high for most — especially since that percentage is close to three times higher than what others would normally allocate to the asset, I personally do not think it’s excessive, especially when you consider the drivers behind gold and the low correlation with a seemingly expensive stock market.
So, why is Dalio such a big advocate for gold?
It’s a magnificent diversifier and structural hedge that can perform well when the rest of the portfolio is on the decline. Indeed, having something in your portfolio that rises in a bloodbath of a session for Wall Street can be a massive plus. Given gold’s driving factors, I can’t say that raising the allocation to gold is a bad idea, especially given that stocks and bonds can move lower in lockstep. While I wouldn’t buy into such a hefty allocation in one go, I do think that building one over time, especially on dips, could be the way to go.
The Bottom Line
If you’d adjust the allocation in your portfolio for asset classes like stocks, bonds, and cryptocurrencies over time based on the environment, why wouldn’t you do the same for gold? I think Ray Dalio is a brilliant investor who’s spot on when it comes to investing in gold. Perhaps the time has come to view the asset, not as a 5% holding, but as a 15% one. Preferably, it’d be best to buy the asset into dips.
For investors seeking greater downside protection, a gold bullion ETF like the SPDR Gold Shares (NYSEARCA:GLD) is a great pick. For those looking to play the bull case in the price of gold, the levered miners might be a more rewarding bet. The VanEck Gold Miners ETF (NYSEARCA:GDX) stands out as a great one-stop shop for those looking to play the mining side.
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