Jim Cramer for the last few months has been advising viewers to hedge themselves against the real possibility of a ramp up in inflation. In the past, I can recall him saying that a properly diversified portfolio should have as much as 20% allocated to gold and other precious metals. While, Cramer has a tendency for hyperbole, as you can see in the quote as he talks about "wheelbarrow currency", there is still wisdom in hedging your portfolio somewhat against inflation. He had this to say prior to interviewing the CEO of AEM
gold mining company.
"A million for a loaf of bread, or a $4 million going to $5 million bottled milk…the next thing to protect against a wheel barrow currency is to own some gold, or at least the stock of a gold miner, since the precious metal goes higher whenever inflation is ramped up or economic chaos reigns. Now that gold has pulled back a lot, as has Agnico- Eagle, one of the gold miners, I don't think any time is better for growing a position, and they had a quarter much better than I was looking for…
Central banks have been selling less gold than at any point in the last ten years. After tonight's big quarter, the question becomes, should we stick with Agnico- Eagle as the stock proxy for gold? Agnico- Eagle's gold production should produce 170,000 ounces at full capacity. It's supposed to produce 130,000 ounces this year, full capacity? They're all going to start coming on. As the company's production continues to grow, cash cost to decline, making them a more attractive company and less risky stock." CNBC's Mad Money on Wednesday, April 29, 2009
There is no doubt that the governments efforts to stimulate the economy have pumped massive amounts of money into the financial 
system. As famed twentieth century economist Milton Friedman is famous for saying, "inflation is always and everywhere a monetary phenomenon." The stated and obvious purpose of the actions by the government are to ignite growth again in the economy, and if this goal is eventually achieved it stands to reason that prices will rise, perhaps quickly. After gold's recent pull back, there is a place for holding gold or gold stocks in your portfolio right now. Depending on your own investment thesis, perhaps as much as 20% which Cramer suggests, but that seems a bit excessive to us. 
In the last 13-weeks gold stocks have under performed the other sectors of precious metal stocks (chart to the right). Ockham believes that AEM is Fairly Valued at present, but there are Undervalued names in the sector such as Anglo American (AAUK).