Should gold continue to be part of your investment portfolio?
Gold, once our reserve currency, is now down almost 30 percent from its peak in August 2011. Many investors who invested in gold funds, exchange-traded funds and bullion may see further declines, according to some analysts.
Investors often perceive gold as a substitute or ‘safe haven’ for currency should U.S. currency be no longer valuable. Others see gold as a hedge against inflation. Furthermore, investors also like gold as a diversification tool for their portfolios. That is, to buffer any severe declines in the stock market.
History suggests gold is an OK inflation hedge, but there have also been time periods when gold has not held up to that expectation. Even still, in light of the Federal Reserve’s current communication, inflation does not seem to be an issue at this time.
If things get really bad in our economy, expert investor Warren Buffett says he would rather own a bag of beans than gold. At least one would have something to eat.
When you think about gold’s real value, it seems to have little, in my opinion.
- It can be used for jewelry, but who thinks about building his or her reserve of wealth in jewelry? And actually, the price of jewelry often does not follow the price of gold as paying for the designer’s work can be costly, which is factored into the price.
- Gold can be used only on a very limited basis in manufacturing; other metals, like copper, have more value in industrial use.
- Gold bullion is heavy, expensive to store and difficult to handle.
- Gold does not generate value; it does not employ people like a business does, nor does it produce income or generate dividends.
While Warren Buffett is not a fan of gold, CNBC’s Jim Cramer believes one should hold a 5 percent to 7 percent position in gold.
Gold. Speculation or our possible reserve currency? The debate is not yet settled.
Disclaimer: The views expressed in this article are the opinions of the author and should not be interpreted as individualized investment advice. Investment objectives, risk tolerances and the financial situation of individual investors may vary. Please consult your financial and tax advisors before investing.