Gold is on a five-week winning streak and is heading toward its strongest monthly gain since 1999. Trading around $4,650 per ounce, the metal remains below the record high set in late January, but the current rally is unfolding against a striking backdrop: elevated long-term Treasury yields, U.S. federal debt above $40 trillion, and investor portfolios becoming increasingly concentrated in a small group of technology stocks.

Former investment banker Felix Prehn argues that this is exactly why gold should be viewed primarily as a portfolio protection tool rather than simply an asset for generating returns.

Fiscal Risks Continue to Support Gold

The yield on the 30-year U.S. Treasury reached 5.34% last week, close to its highest level in roughly two decades.

Meanwhile, beginning on September 9, the U.S. Treasury is expected to double the size of its long-dated bond buybacks from $2 billion to at least $4 billion per operation as part of efforts to support market liquidity.

Prehn believes the move could provide additional support to financial markets. However, an important distinction remains: Treasury buybacks are not the same as directly “printing money,” because the securities being repurchased are expected to be replaced through new issuance.

Gold Is Not a Get-Rich-Quick Asset

Prehn has a clear view of gold’s role:

“Gold protects us, but it doesn’t really make us rich.”

In his view, gold should be treated more like insurance for a portfolio. When the purchasing power of the U.S. dollar weakens or financial uncertainty rises, gold can help preserve value.

He also cautions that gold does not automatically rise during periods of war.

During the conflict with Iran, higher oil prices increased inflation pressure and pushed bond yields higher. With government bonds offering yields of around 5%, some institutional capital moved away from precious metals and into fixed-income assets.

That helps explain why investors who bought gold near the January peak had to endure significant losses before prices recovered.

Gold and Silver Serve Different Purposes

According to Prehn, gold is better suited to a long-term holding period of more than five years, given its relatively greater stability.

Silver is more volatile but also benefits from industrial demand, particularly in technology and AI-related applications.

The key point is that investors should not treat gold and silver as interchangeable assets.

The Biggest Lesson: Time Creates Options

Prehn also emphasizes the difference between younger investors and those approaching or already in retirement.

With a sufficiently large portfolio, investors may be able to tolerate significant market declines if their annual withdrawals remain small relative to total assets.

For investors with smaller portfolios and shorter time horizons, increasing allocations to cash or short-term U.S. Treasuries may make more sense, even if expected returns are lower.

His broader message is simple:

The earlier investors recognize portfolio risks, the more time they have to adjust.

And in a market defined by rising concentration, high public debt and volatile long-term yields, gold may not be the asset that makes investors rich quickly, but it can still play an important role in diversifying and protecting a portfolio.

This article is for informational purposes only and should not be considered investment advice.

Source: Kitco