Image Source: Pixabay

Last week, Incrementum released their annual ‘In Gold We Trust’ report. It’s over 400 pages of the most accurate, in-depth insights on gold you’ll find. They release the annual report every spring. You can download it for yourself here.

This year, they added something different. Inside you’ll find one of the first proposals I’ve seen to replace the old 60/40 portfolio – 60% stocks/40% bonds.

That’s because over the past three years, you've probably heard the same thing as me. I’ve heard pundit after pundit proclaim that the 60/40 portfolio is dead, but never advising on a full allocation.

Naturally, they have good reason. For advisors, their portfolio allocations are how they bring home the bacon. For precious metals vendors, they’re only interested in selling gold and silver. For podcast hosts, they’re interested in what the guest has to say.

But the ‘In Gold We Trust’ report is a 422-page investigative document focused on tracking gold, silver, and now Bitcoin. They’re not selling anything except for the same consensual belief that’s permeated human civilization for 3000 years: Gold is money.

Here’s their proposal: The new portfolio is now 60% stocks and bonds. The other 40% of the new portfolio is focused on commodities.

Incrementum shares the proposal because it can now act with certainty that we are entering a commodity bull market.

John Rubino previously commented in "It’s Not Just Gold. This Is A Full-On Commodities Bull Market" with the following:

“This isn’t just gold breaking out of its trading range. We’re witnessing the launch of a broad-based commodities bull market. And history says that once such a thing gets started, it can persist for a very long time (on the following chart, CAGR stands for 'compound annual growth rate').

(Click on image to enlarge)

"Another way of analyzing this trend is to compare commodities to equities. The next chart is a bit outdated but its point remains valid: Commodities are dirt cheap relative to the S&P 500, and if history repeats, gold, copper, etc., should outperform tech and financial stocks for another decade or two.”

(Click on image to enlarge)

So, why is the market entering a commodity bull market? The commodity space, specifically gold, does not have counter-party risk, which means gold’s value, does not depend on anything else to back it up.

It is what it is. Sugar is sugar. Grain is grain. And gold is gold. When you trade commodities, you are trading something you can touch and feel. Whereas when you are trading stocks, you are trading ownership in an asset you have little control over.

You can see this in the chart above. Before the tech bubble in 2000, people were chasing overvalued stocks for quick gains. The quick money was in dot.com start-ups, so that’s where people went.

Then you can see the downward trend in 2006 before the GFC. And then you can see it again after Quantitative Easing. Asset inflation, as well as the strong dollar (creating a flood of foreign and domestic investment into bonds), pushed investors into chasing the tech stocks and the S&P 500 once again.

Now, there’s the same situation. Except at much higher margins because of the exceptional flood of debt that keeps getting printed at the Federal Reserve: $34 trillion in US sovereign debt, with another $1.5 trillion to $2 trillion to be added on this year on Federal deficit spending alone. And around $8 trillion in maturing bonds to be paid out in 2024, which means more debt.

This all adds up to not just an overvalued stock market ready to rebound into a commodities market, but an increasingly overvalued US dollar. So if you’re buying bonds, you’re trading for a debt obligation in what could be an overvalued currency, very soon. You’re depending on the government to print more money, going into more debt, to meet their obligation to pay you more.

At least for Incrementum, that means a 25% gold allocation. To make it simple:

• 15% Safe Haven Gold = physical gold, or the Sprott Gold Trust Fund.
• 10% Performance Gold = GDX index fund, or if your want a bit more risk, the GDXJ.

That’s it for now. Your new 60/40 portfolio is all up to you.

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