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Financial Opinion and Insights

Time To Be Cautious About Gold?

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

It might be! We all know that all asset classes tend to cycle; but, you might also agree that whenever we experience a run-up in pricing for virtually any asset class, people tend to jump on the band wagon thinking it’s the right place to be to make money. That’s called speculation.

It may be questionable at this point just how much exposure the average investor should have to gold.

Don’t get me wrong; the argument for owning gold as part of a multi-asset class portfolio, I believe, is sound. Gold bullion as a safe haven against market uncertainty and inflation would seem to make sense; and during periods of market stress, gold has tended to display low correlations to traditional equity and fixed-income portfolios, making it an attractive diversification tool.   But, have some of the recent substantial asset flows into gold bullion come from speculative sources, helping to push up the pricing to (non-inflation adjusted) historical highs?   Remember, gold is a commodity; and commodity pricing is driven largely by supply and demand and accessibility to gold through exchange-traded funds (ETFs) may have contributed to the recent steep run-up in prices.

How much should YOU have invested in gold? That depends on a number of factors which ultimately determine your overall portfolio allocation strategy.

The gold weighting in my clients’ portfolios, for example, are based on their investment plans and each has a unique investment policy statement (IPS) which becomes the roadmap for the investment process their managers follow. That’s a good idea for the rest of us, as well.

Jim

The Independent Financial Group is a fee-only registered investment advisor and does not sell products earn commissions, or accept any third-party compensation or incentives of any description. IFG also does not provide tax or legal advice. The reader should seek competent counsel to address those issues. Nothing in this post should be accepted as investment advice which is provided only to IFG clients. Opinions expressed in this piece are those of the author.

Written by Jim Lorenzen, CFP®, AIF®

October 19, 2010 at 8:00 am

Posted in Uncategorized