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Anand Kumar/AI-Generated Image
Summary: A relative called to say his gold had more than doubled. He had not considered that a thing which keeps climbing might eventually demand a decision. That silence is the subject of this note. And it applies to more investors than he realised.
Some years ago, a relative called to tell me, in the tone of a man sharing a secret, that the gold he had bought for the family had more than doubled. I congratulated him. The gain was real. Then I asked what he planned to do about it, and the line went quiet. He had not considered that a thing which keeps climbing might, at some point, demand a decision.
That silence is the subject of this note.
First, an admission, because it bears on what follows. For most of my working life, I held that gold was a useless asset. A lump of metal in a locker, paying no dividend, growing no business, kept aloft by sentiment and fear. I said so more than once, quite strongly. Last October, I softened that stand a little. I wrote that a small slice of gold, 5-10 per cent, made sense as insurance against the kind of monetary trouble equities cannot survive. Insurance, not strategy. A hedge against a low-probability, high-impact shock, the way you treat a term plan you hope never to claim.
I stand by that. But insurance has a peculiar problem the moment it starts winning.
Insurance is meant to be a small corner of your wealth you barely notice. The fire extinguisher in the kitchen, not the kitchen itself. If it expands to fill half the room, it is no longer a safety device. It is a hazard. A hedge works precisely because it is small and moves differently from everything else you own. Let it grow large enough, and it stops offsetting your risk. It becomes your risk. The thing you bought to protect the portfolio is now the thing that can sink it.
That is what a great rally does to a sensible gold holding. Suppose you took my advice and put a tenth of your portfolio into gold, then did the right thing and left it alone. A rise of this size has not left you alone. That tenth may now be a fifth, or more. You did nothing, and yet your allocation roughly doubled, because the market rebalanced it while you slept. In the wrong direction.
This is the part that fools careful people. It feels like discipline. You held your nerve, you stayed off the app, you practised every virtue I have preached for years. And yet, without noticing, you have been converted. From a person carrying a modest hedge into one placing a large, concentrated bet on a single asset at the top of its cycle. You became a gold bull without ever choosing to be one. The hedge quietly turned into the bet.
And notice the trap closing. The very 5-10 per cent I called prudent is now the 15-20 per cent I warned you against. You did not change your mind. The price changed for you.
The remedy is dull and faintly painful, which is usually how you know it is the right one.
Rebalancing means selling enough of your winners to bring them back to the weight you chose when you were thinking clearly, then moving the proceeds into whatever has lagged. Notice the discomfort. The instinct is always to sell the thing that is rising and buy the thing that is not. And there is a second trap waiting just past the first. You sell, gold climbs another 10 per cent the next month, and you decide you were a fool to trim it. You were not. Rebalancing is not a forecast that the winner has peaked. It is a refusal to let one asset quietly take over the whole plan. Here, for once, the right move is not to sit still. It is to move against the momentum and follow the plan you wrote in a calmer mood.
Let me be clear about what I am not saying. I am not telling you gold will fall. I have no idea, and neither does anyone selling you a forecast. I am telling you only this: your share of it has grown without your consent, and a hedge you keep adding to by accident has stopped being a hedge.
Gold is meant to be the part of your portfolio you can afford to ignore. The day you can no longer stop looking at it is the day it has stopped doing its job. So this weekend, open your portfolio, find what gold has quietly become, and trim it back to the number you chose when you were calm.
Also read: Why gold funds just shut their biggest taps
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