Why you should lighten up on gold in your portfolio

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To be sure, gold, like most other asset classes, is likely to remain volatile in the coming months amid continued investor speculation about the end of easy money from the Fed.

In addition, there’s always the chance that gold prices may regain their shine if US inflation seems more likely to spike, if people once again start questioning the survival of the euro (EZU) and or if the world economy experiences another exogenous shock. But absent those scenarios, I’d continue to lighten up on the precious metal.

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Market Realist – The graph above shows the inflation rates for the past seven years. Although inflation has had its ups and downs in that period, it has been between 1% to 2% since Q2 of 2012. Although the U.S. (SPY)(IVV) economy is moving upward, it’s not moving fast enough to increase inflation rates. As long as inflation remains at bay, gold prices may not spike up to a great extent. Remember, gold is a good hedge for inflation as gold (GLD)(IAU) is good store of value. So inflation and gold correlate.

If other precious metals, such as palladium (PALL), continue to outperform, gold might remain under negative pressure for some time.

Please read Market Realist’s series Must-know: Why Palladium is the new gold to learn more about precious metals.

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