I don't have enough information about your personal financial situation to give you any specific advice. But I will share with you my thoughts that would influence my own decision if I were in your shoes.
First of all, I would remind myself that my personal residence is consumption and not an investment. That is not to say that its residual value upon sale may exceed my purchase price. It is still consumption. I want to make sure my personal income are sufficient to justify that level of consumption.
I also want to have a level of savings. Mine tends to be higher than most because I am always looking to enter in to various ventures or deals (real estate, small businesses, etc). Nonetheless, it is always a good idea to keep a rainy day fund. I would rather not totally deplete my savings and investments just to finance my residence.
It is up to you to strike a balance between consumption and savings. While I may believe maintaining your current exposure to the gold market will yield you the highest return over time, that doesn't necessarily mean it is the right decision for you. Taking some profits now and rolling them into your house so as to lower your mortgage payment may work better for you. After all, one of the reason we make investments is to improve our lifestyles.
Now dealing with your concern with rising interest rates and the price of gold, I am not as concerned as others on theses boards. Others will cite Paul Volker's decision to take rates to 20% and the subsequent collapse of gold in the early 80's as a reason to expect a similar scenario this time. There are several reasons I do not see that scenario repeating itself.
First of all the Fed owns over $1 trillion in mortgage related securities. A rise in mortgage rates to double digits would destroy the remaining value of those securities. That would bankrupt the Fed. Along with breaking the Chinese yuan's peg to the dollar, keeping mortgage rates low and protecting the Fed's balance sheet is one of the primary reasons we have QE2. It is also the reason we will see QE3 if long term rates continue to rise. Always remember that no matter what Bernanke or any other Fed chief says about full employment or inflation, the primary goals of the Fed are to protect the assets of the Fed and protect the big banks.
Nonetheless, Bernake's policies will eventually fail as inflation takes hold and investors demand an inflation component for hold bonds. Looking back at the late 70's and early 80's, interest rates were in the high single digits and low double digits for most of that time. And during that time gold steadily rose. It was only the spike in short term rates above 20% that broke gold. For gold to be broken again, short term rates will have to rise significantly above the inflation rate.
The size of the federal debt along with the fact that most of it is short term really ties the Feds hands in raising short term rates substantially to kill inflation and undermine gold. As short term rates rise, the federal budget deficits explode. Rising rates necessitate further money printing as trillion or multi-trillion dollar budget deficits become the norm. The Fed will jaw-bone about "exit strategies" and rate increases, but they cannot employ the same strategy as Volker did without causing the interest component of the Federal budget to go parabolic. Volker had the benefit of the fact that most of our debt in the early 80's was in 30 year treasuries. That is not the case today as our politicians have us living under the biggest ARM on the planet.
Bottom line, gold is going much higher as the Fed fights to keep rates low. Rising long term rates do not have a significant effect on gold. Housing prices may rise nominally as the Fed continues to reflate but will underperform other asset classes due to supply overhangs.
Feel free to book some profits and use them to cut your mortgage payments to a comfort level.
Congratulations on a successful investment and best of luck in the future.
