Gold Is Collapsing, Not Bottoming: Swedroe

Just when you thought the 8% bounce in the price of gold over the past few weeks might just be the long-awaited start of a bigger turn around, and some investors are saying it's nothing more than a temporary turnaround.

While many investors continue to call for a rebound to the prior record levels of $1900 an ounce and beyond, other pros suggest this might be the perfect time to jump off, and Larry Swedroe, principal with Buckingham Asset Management, is one of them.

"The main reason people buy gold, I find, is as a protection against inflation and it doesn't do that job well at all," he says in the attached video. "I think gold hedges two things; the risk of lose monetary policy and certain geopolitical risks like wars."

As he sees outlines in a recent column, if gold was able to fall 85% from 1980 to 2003, at a time when inflation was clipping along at 4%, then it could definitely happen again.

To be fair, many metal mavens have defended their gold holdings based upon the debasement of global currencies, especially the US dollar, at the hands of loose central bank policies that will ultimately breed inflation; something which thus far has not occurred.

While Swedroe does not rule out owning gold all together, he says it should only be done in small size, and then only if "disciplined re-balancing," is used that forces selling when it rises and purchases when it falls. Even then, he says investors looking to hedge their inflation risk would be better served owning a broader basket of commodities like the Dow Jones UBS Commodity Index (DJC), rather than just gold.