According to Barron's: "There is now an estimated $4 trillion worth of gold held by central banks, and $5 trillion by private investors.

Calculated against $260 trillion for all financial assets, including stocks, bonds, cash, and alternatives, that works out to a global gold portfolio allocation of 3.5%, a record."

I know, 3.5% sounds small. But the volume is staggering.

Gold has its value

The thing is, gold is a physical asset that's considered a store of value for thousands of years. Its value has existed since 550 BC.

No matter what happens to the economy - banks collapse, debt go bust - gold will always have its value.

For many historians, you'll know gold has deep culture:

• In Asia, gold jewelry has always been a form of wealth.
• In Europe, gold coins were stored and passed down through wars.
• In the Middle East, gold dowries were the standard for centuries.

Yet, you can't print gold.

You can't create more of this asset class in a lab.

It's a lot like a “chaos” hedge. Though it doesn't have as much industrial uses compared to silver, when times get tough, investors turn to gold as a safe haven.

Even during the housing bubble in early 2000, gold has outperformed the market.

But… Has gold always outperformed the market?

Most of gold's outperformance today is actually due to its recent rally.

From 1975 till 2024, a $1 investment in gold would have turned into $16. Over this same period, the same dollar would have turned into $348 for US stocks. The difference is quite big.

Gold had its good moments after President Richard Nixon de-pegged the dollar from gold in 1971. This triggered a massive rally through the 1970s.

It also helped that gold could be privately held from 1974 onward, allowing Americans once again to legally own gold as a wealth-preserving asset and safe haven against inflation.

Since then? Gold's performance has been modest. Sometimes disappointing.

In 2022, when US inflation peaked to 40-year high of close to double digits, gold prices went nowhere. Soaring inflation pushed interest rates higher, making Treasury bills more attractive than gold from its higher yield.

Perhaps, gold isn't backed by cash flow like properties (rental income), stocks (earnings and dividends) or bonds (coupons). Which means, the supposed safe haven asset class is based entirely on how the market feels.

Many investors believe gold is a hedge against inflation. But I suspect the real purpose investors buy gold - and I won't get into political analysis - is to hedge against government hubris.

I admit, gold is one of the few asset classes I've no clue where it's headed to.

Market fear can last longer than you think. And I won't be surprised if investors would suddenly pay for half its worth today.

Would I buy gold as a dividend investor?

Disclaimer: I don't own gold.

But I’d say it's worth a small position in a dividend portfolio as a form of asset diversification. One other way is buying gold miners, which produce profits and dividends for investors.

I don't expect gold to move the performance needle for your portfolio. But it makes sense as a portfolio diversification.

Having said that, as a dividend investor, I prefer to own assets that produce future cash flow. At least I know in the short-term, market fluctuations can distort investment security prices.

But in the longer term, I get paid in real forms of cash, including earnings, dividends and bond coupons.

To me, this is the ultimate form of wealth defense.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan