Importance of Diversification

Diversification – distributing your assets across a spectrum of investing options – is one of the most important ways of wise portfolio handling. For the majority, diversification means simply dividing the available capital they have among cash savings, bonds, and stocks, including mutual funds. But if gold is not added to the list, such a division of assets is not based on anything, it’s superficial, because it doesn’t take into account the corrosive effects of currency depreciation on the overall portfolio.

Alan Greenspan, chairman of the United States Federal Reserve, made a wide variety of favorable comments about gold for many years. Even as chairman of the Federal Reserve, he has remained one of the most eloquent defenders of gold, a position he has held for most of his life. The following comment made by him in a congressional testimony a few years ago, goes to the center of the topic with respect to gold’s overall portfolio role:

• I do think there is a considerable amount of information about the nature of a domestic currency from observing its price in terms of gold. It is a long-term issue. It is an issue which I think is relevant, and if you don’t believe that, you always have to ask the question why it is that central banks hold so much gold which earns no interest and which costs them money to store. The answer is obvious: they consider it of significant value, and indeed, they consider t the ultimate means of payment, one that does not require any form of endorsement. There is something out there that is terribly important that the gold price is telling us. I think that disregarding it is to fail to recognize certain crucial aspects of the value of currencies.