Gold Trend On The Up?

At this moment in time many bearish investment advisors are recommending that portfolios should include exposure to gold.

The two principle reasons given are that they consider that the US$, the Cable (GB Pound) and maybe the Euro are likely to decline in purchasing power as inflation rears its ugly head coupled with the onset of a recession hitting stock prices world wide.

They believe that gold, as the traditional store of value, will become increasingly sought after as this scenario unfolds.

Whether these two events and their consequences are on the cards now or sometime in the near future is not for this contributor to comment upon although we note that economic, empirical, and most other ongoing activities pursued by man have been cyclical, and that includes the price of gold!

The opposing view held by many is that the current bull run in stocks, commodities and emerging markets
has still some way to go with demand being driven by the increasing affluence of the new and growing middle classes in India, China, Russia and the other strengthening economies with the USA continuing to be a powerful contributor.

There are many arguments to support both sides of this debate but, whichever you favor, the arguments for exposure to gold look encouraging.

The question then is how best to invest in the metal?

We recommend that you limit your exposure to gold to that percentage of your portfolio that you feel comfortable with, bearing in mind the run up the price has had in the last year or two, the fact it is still over one hundred dollars off its high earlier this year and the comatose state the price remained at after its last surge in volatility and subsequent decline over twenty years ago.

Then there is the problem of central banks offloading, or as reported, the Russians and Chinese loading up, and then there is political interference.

In other words, a not inconsiderable element of speculation that is difficult to judge is involved in being in gold so 'not all the eggs in one basket' is as true of this investment, if not more so, as in all the others.

Following on with the ´not all the eggs´ rule, gold investments in your portfolio should be split into two categories, holdings of the physical metal and of mining stocks.

To add to the argument only about 1.7% of all gold existing above ground is added to each year, obviously solely by mining, while at the same time demand is increasing both from the traditional increasingly prosperous buyers in the East but also from countries over-exposed to an ever weakening dollar and an increasing use of the metal in the industrial and technological fields.

The clincher is that according to current estimates the extraction of the metal is not keeping up with demand, add to this that some gold producers are experiencing labor and political problems that may worsen and in our view that should result in the bull run in gold continuing for some time irrespective of the currency or stock markets performance.