Is it time to buy gold for your investment portfolio?
Over the last few months of turbulence and economic shocks in the market, gold has once again been showing why it has unique properties as a safe haven.
The gold price declined from $1,921.17 an ounce in 2011, to just below $1,200 in 2013. News coverage since this decline began has focussed on questions over its price manipulation and the end of its multi-year bull run.
There is no doubt that the metal has non-standard properties as a commodity investment. Its supply and demand characteristics are very attractive, as it is a finite resource with huge demand for its physical form in some of the world's fastest growing economies. It has acted as a store of wealth for centuries, and thus has stood the test of time as a valuable commodity. Aside from its obvious aesthetic allure, it has superb physical properties for use in the industrial production and manufacture of many high tech products. Dentists favour gold over all other materials for the manufacture of fake teeth, not due to its price, but due to its physical properties (e.g. it expands and contracts from heat/cold in a very similar manner to natural teeth).
It has a diversifying effect when used in conjunction with other asset classes. It acts as a currency hedge, as well as being the “go to” hedge against inflation. There are now several ways of accessing gold as an investment, including via a fund diversified across mining companies; an ETF tracking the physical price; buying it in its physical form (to name but a few).
Some think gold is still overvalued; others think it impossible to give a fair value on gold (link). Whatever your opinion, the age-old safe haven argument has come to the fore again, forcing many doubters to re-consider it, if only as a result of uncertainty in other areas.
The spot price is up by nearly 13% since November, spurred initially by fears that US growth would not be enough to offset weakness in other economies. More recent market shocks created by the Swiss SNB releasing the CHF currency cap with Euro gave momentum to this gold rally.
Only time will tell, but will the victory by anti-austerity party Syriza in Greece further fuel this trend? This election result has fuelled fears of a Euro exit for Greece (the “Grexit”), of further weakening of the euro, but most significantly has created general uncertainty as to how new Greek policy will now clash with European measures. All these issues point towards investors rushing for traditional safe havens.
With currencies on a roller-coaster ride, bond yields nailed to the floor and equities highly reactive to news and sentiment, it could be time to buy gold for your investment portfolio.