If you happen to follow any type of financial news, you may have noticed a large interest being placed on gold in the current market. There are television commercials offering cash for gold as well as local and home business’s that are sprouting up everywhere to get in on the modern day rush. However, before deciding whether gold has a place within your portfolio, make sure you understand the factors that drive demand as well as how gold has historically complemented other financial assets.
According to the World Gold Council, demand in 2010 has been driven by a growing desire for jewelry in China and India, strong interest from European and US investors in the wake of economic instability, and fears about the potential for a double dip recession. A weak dollar has also contributed to rising gold values. This is know to happen when the fed cuts rates because it makes the dollar less attractive to overseas investors which in turn helps push up gold prices. All of these concerns have driven gold to an all time high but is the recent surge justified or are we inflating another bubble that might soon pop?
Those that question current valuations point to a period between January 1979 and January 1980. During that time, the price of gold more than tripled from $227 an ounce to $678 an ounce. As the price of gold subsequently declined, those investors who purchased gold at its January of 1980 inflation adjusted peak would have had to wait until April of 2007, more than 27 years, to break even.[1] This, of course, does not necessarily mean that gold is set to take another fall but it does point to the investment risk of purchasing an asset that has experienced a significant surge in value such as housing did in previous years as well as oil did in 2008.
If and when you start evaluating whether gold is a suitable investment given your situation, consider its potential diversification benefits when included in a portfolio along with other assets. Historically, the correlation between gold and other financial assets; such as domestic stocks, foreign stocks, government bonds, REIT’s, and cash, has been low. That means that if the above mentioned assets declined in value, then gold may hold steady or increase which in turn helps reduce a portfolio’s overall volatility. And if you are thinking about investing in gold, do it carefully. Make sure you talk with a qualified advisor who understands the gold markets and can help you make an educated decision about your next steps and what are the best ways to purchase gold. No matter which direction you go, make sure you make your decisions based more on good information and less on emotion.
[1]Source: Standard and Poor’s. Gold is represented by the 4 p.m. London fix.
Information is provided for informational use only and should not be construed as legal, tax, accounting, or investment advice. You should consult a qualified professional for advice specific to your situation. Any opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions. Past performance does not guarantee future results.
Kevin MacWilliams is a Financial Advisor at Clearview Financial Group. Securities are offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Kevin MacWilliams, Representative, Clearview Financial Group and the Securities America Companies are unaffiliated. Kevin MacWilliams is licensed to conduct securities business in the states of AL, GA, IN, NC, OH, TN, and TX. Kevin MacWilliams is also licensed to conduct insurance business in OH and TN and advisory business in OH and TN. For more information, please call Kevin at 826-2279 Ext 4, or e-mail and or visit Clearview Financial Group.
