(Kitco News) - The gold market continues to show robust fundamentals that support prices at record highs near $4,200 an ounce. However, one thing the market is lacking is sellers, as many investors see no urgency to take profits amid this strong momentum.
In a recent interview with Kitco News, John Merrill, Founder, President and CIO of Tanglewood Total Wealth Management, said that gold currently represents about 12% of his total portfolio — an overweight position compared to his target allocation of 10%.
Merrill explained that he has been bullish on gold since 2023, initially starting with a 5% to 6% allocation. He added that he has rebalanced his gold holdings a few times over the past two years due to the metal’s unprecedented gains. However, looking ahead, he sees no reason to take profits right now.
“We are going to continue to hold our gold,” he said. “We traditionally rebalance at the end of the year, so we will look at our gold then, whether the price goes up or down.”
Even if he does take some gold profits off the table, Merrill said that a fundamental shift in the global economy means he will continue to maintain a core position.
“We will own gold. I don't know what the percentage will be 20 years from now, but we will own gold because nothing replaces it,” he said.
Merrill explained that rising global sovereign debt is currently the biggest factor driving gold demand. He said that investors are desperate to protect their wealth as fiat currencies around the globe lose purchasing power.
At the same time, he noted that rising debt is creating significant risks for long-term Treasuries, which were once considered the ultimate safe-haven asset.
“We started to recognize this in 2023 — that there were new drivers for gold. We’d never thought of gold as an inflation hedge because it always had a poor history with that, but it is a disaster hedge. And now it's moved beyond being a disaster hedge to being a currency hedge,” he said.
Merrill said gold’s role as a currency hedge can be traced back to the 2008 Great Financial Crisis, when gold prices began their first run to all-time highs as the Federal Reserve dropped interest rates to zero and introduced quantitative easing.
He added that government stimulus spending during the 2020 pandemic further exacerbated sovereign debt issues, and the threat of a recession will only worsen the health of the global financial system.
On top of unchecked government spending, Merrill said that the weaponization of the U.S. dollar against Russia and the intensifying global trade war are eroding trust in the dollar as the world’s reserve currency.
“Gold has become the alternative because no one has a currency that is either big enough, stable enough, or free enough to operate as a reserve currency,” he said.
Merrill noted that the deglobalization trend makes it increasingly difficult for nations to cooperate on developing any new form of reserve currency.
Although gold prices are currently trading at all-time highs — up nearly 60% so far this year — and appear overbought, Merrill said he doesn’t see this as an obstacle to further investment demand.
He added that while gold looks overbought against major currencies, it remains undervalued compared to equity markets.
