Gold Price Could Rise on Volume Disparity From Paper Money

John Hathaway, the manager of the Tocqueville Gold Fund (TGLDX) had a take in Barron's on why gold can move higher that I don't recall hearing before.

He said: "the disparity between the amount of paper that has been created since 1980 and the amount of gold that has been produced since then is just enormous." So we have had a much larger increase in the supply of money compared to the supply of gold. For what it's worth, Hathaway thinks gold can go quite a bit higher.

I have been writing about having gold exposure one way or another since I started my site, (three years ago yesterday, by the way). The idea that it can zig when stocks zag has been tested a little bit of late. I own several things in the mix that I think/hope provide offset to domestic stocks. When the market is roaring, I would expect gold to lag - but sometimes, like the month just ended, gold does even better than stocks.

Maybe a way to think of it is that gold may not a great hedge for market events, but could offer a lot more protection against an external shock like a terror attack. If that line of thought makes sense to you then it may be possible that there will be long periods of time where it does very little, as was the case from February of this year until August. Personally, I do not think this is a bad thing, but some folks will not be patient enough to endure sideways action for that long.

I am no gold bug, but I do believe that a diversified portfolio needs to include exposure to something that gets mined or to a company that does mining. The theme has been a huge contributor to gains in the last few years and I think will continue to be very important for the next several years.