Is Gold the Right Investment?

I was asked by a journalist this week about investing in Gold it is often considered a “safe haven” and insurance against financial woes like inflation, deflation, currency collapse and other calamities. But just today “Gold Fell to a Two Month Low.” Gold is an investment that has a place in an investment portfolio and currently we have holdings of gold mining companies in some our client’s accounts totaling between 4% and 8% depending on the clients risk tolerance.

However gold is not a universal “insurance” and needs to be looked at as an investment influenced by supply and demand, manias, and capital flows. Historically oil is the most correlated asset to inflation however some hard currencies, equities, and commodities also have provided inflation protection. High grade bonds can tend to protect from deflation in certain markets.

Gold is to some considered a “carry trade” which means that it is often bough with borrowed money and therefore is influenced by interest rates-low. Bottom line all investments need to be owned for a reason. An investment portfolio’s job is to create wealth or create income for current or future use; gold can help a portfolio meet those goals. Often investors will end up with a “Du jour” portfolio of investments bought because they sounded good at the time, but not coordinated in a rational and well-thought-out and managed investment process. At the end of the day, gold can be added to a portfolio that has its risk and reward characteristics enhanced and evaluated by the addition of gold. Never assume that it is the right investment.