Simple Gold Trade - Buy 1 tranche, But Refrain From going all-in.

Gold was trading lower on Friday, but is also trading down around the bottom of the range it's been in since 2011. In my books, it's time for a tranche as it looks to me like Gold is not going to break through the 1550 handle. Remember, a tranche is a minimum lump sum that you decide you can afford to pay into an asset on regular intervals until you are fully allocated.

http://charts.kitco.com/KitcoCharts/?Symbol=GOLD&Currency=USD&multiCurrency=true&langId=EN&period=416358000000

Another observation is the Gold to Dow Ratio.

http://www.macrotrends.org/1378/dow-to-gold-ratio-100-year-historical-chart

Nothing much has changed in the ratio since January, except that the Dow has become more expensive relative to Gold. The interesting thing here is that the ratio is still close to around it's historical mean of 5, but the Dow is hitting all time highs. I have to wonder if the relationship will break down in Gold's favour. The reason I'm asking this question is that the US dollar has been on a downward slope since 2000 with the beginning of extreme government interventions in capital markets.  Plus, I have to wonder what's going to happen in the face of Japan's continued efforts to debase their own currency to increase exports. What I mean by this is that the US government won't be able to keep their mandate to remain competitive if the US dollar is too pricey compared to other currencies. Since it looks like major competitors are debasing, my guess is that the US will follow suit. I do hope they don't, though.

While exports should be increasing through increased productivity and a favorable tax situation, it seems that governments like Japan, China and the US are opting for currency debasement. This is a race to the bottom, and one has to wonder how far they will let this game play. This uncertainty is precisely why I hold Gold - I'm not smart enough to understand how it all works, but I know that Gold is an anti-dollar trade. So, while I don't believe one should sell everything to buy Gold I do believe that investors should have a meaningful allocation to Gold (and indeed other precious metals). What I mean by meaningful is 3-5% to no more than 30% of your portfolio. Gold is volatile, so I wouldn't go all in, but as I said above, now is a good time for a tranche. And if gold trades lower, I'll be buying yet another tranche - and so on.

Since I'm young, I am making regular contributions to my retirement fund, so that means until things change substantially in the markets, I'll be buying tranches of Gold and other metals 'on the price dips' for the foreseeable future.