Since the 2001 low, gold is up ~480% while the US dollar index is down about 38% over approximately the same period. A portfolio made in 2001 consisting of 90% $ US Tbills and 10% gold would be worth about par in 2001 dollars, pre-tax. You'll have to believe me or do the math yourself. The continously-rolled TBills would be valued in 38% devalued 2011 dollars and the gold +479% in 2011 dollars. (I wonder if this could possibly be the origin of the 10% gold portfolio allocation that has been mentioned routinely since the 1970's?) To come out ahead of ten years of dollar devaluation after tax you would have needed to have >10% in gold. In any event even with 15-20% gold and the rest in TBills it was and is a fairly conservative portfolio.
But isn't gold overvalued relative to dollars after a decade long run? I don't think so, but I can understand why some people might think so. About 10:1 gains versus the reciprocal of the dollar seems reasonable to me. It also is clear to me that if the dollar were to start a runaway decline, gold would go very, very much higher in nominal dollars. Also if the dollar were to stabilize and wander sideways, gold is unlikely to collapse since no central bank wants to repeat Volcker's 1979 game and raise rates dramatically, the only thing that would kill gold.
At the moment I have about 15% in physical gold and about 20% in "paper gold" (closed-end funds, stocks and commodity-related issues, NOT precious metals ETFs). That's a little high overall for me for "sleep-able volatility", but some of that is in option-writing funds like GGN and CFD which were added to on the recent bear raids. I may well trade back out of some "paper" on future rises.
I probably won't go to TBills, at least not yet, but as I have written recently, I have drastically cut down duration or maturites in bond funds. Bill Gross is doing the same in PTTRX/PTRAX which is my single largest position, but my new money is going into PFIUX and PTSHX which are far shorter term and pay 2.25% and 1% respectively. Not much but far more than TBills! I hope it's clear why I want to hold predominantly short term dollar assets: my inflationary views could be wrong, and I live in the US.