Where the experts stand on gold and gold stocks
Although gold has made strong gains this past year, it’s still volatile and should play a modest role in your portfolio, say these U.S. experts.
Gold used to be the unwelcome guest at the party.
It was the outsider, the unpredictable investment “associated with wild-eyed doomsayers and slick operators.” It was the final straw to grasp, a sort of Last Ditch Saloon for investors when things were unravelling.
Now it has found its way into the “respectable portfolios of trust companies and diversified mutual funds.”
It has certainly pushed its way into the upper crust over the past year, sitting today at about US$1,115 an ounce.
So how much gold should you have in your portfolio? Is it time to have less, or more? And how much of that should be in gold stocks?
For answers to these and other golden questions, we turn to Mr. Andrew Leckey, who writes a column on “Successful Investing” for Bull & Bear’s Resource Investor (and from whom the above quotes come).
Mr. Leckey has his own considered opinions on gold, but he has also consulted three leading experts on the matter.
They all believe gold is still on its way up, and they have firm opinions on how much you should own and how you should own it.
A modest portion
Unstable currencies, weak financial markets, bank failures and political and economic unrest — all of these factors can burnish up the appeal of gold. And we’ve had more than our fair share of them of late.
The result is that gold-oriented mutual funds, which usually invest in gold stocks, have gained better than 80 per cent over the past 12 months, reports Mr. Leckey. Their five-year annualized return is 20 per cent.
And of course the precious metal itself began 2009 at $800 an ounce and ended it at almost $1,100. It has not changed course.
Gold is beginning to look more settled. The Reserve Bank of India even gave it an unexpected boost when it purchased 200 tons from the International Monetary Fund last November. But let’s not get carried away.
“Despite becoming more mainstream, gold remains volatile and the opinions about its future often vary markedly among the experts,” says Mr. Leckey. “That’s why it should never be considered for more than a modest portion of your portfolio, mostly as a hedge in difficult times.”
$1,300-$1,400 an ounce
The author’s first interview is with Mr. Leo Larkin, equity metals analyst with Standard & Poor’s Corp. in New York. He thinks gold will hit $1,300 an ounce by the end of the year.
“Gold competes against riskless assets such as Treasury bills, which are yielding next to nothing,” he states. It will continue to be a hedge against fluctuating currencies as well.
While the price spikes are not likely to be as frequent or as sharp as last year’s, Mr. Larkin says, prices will keep on going higher and investors should be able to make gains.
Mr. Jeffrey Christian thinks gold may go even higher. He’s managing director of CPM Group in New York.
“In the first half of this year we’re still going to have people wringing their hands about economic chaos and inflation,” he says. “So I wouldn’t be surprised to see gold spike to $1,300 or $1,400 an ounce.”
But as the signs of economic recovery set in, he adds, gold is likely to settle back down to the $1,100 level at which it finished last year.
Own the very biggest
Mr. Dennis Gartman publisher of a newsletter in Suffolk, Virginia, makes his position clear right away. “And I want you to know up front that I’m not a ‘gold bug’ who is into conspiracies or anything of that sort.”
Many gold bugs do indeed believe the powers-that-be try to keep gold at bay for various reasons that are best left to another time and place.
Mr. Gartman simply believes that gold will be higher in price six months from now. And he thinks the best way to own gold is through an exchange-traded fund, SPDR Gold Trust (NYSE-GLD). It is trading at $109.54, $10 below the high it reached in December.
You take on more risk with gold mining shares, he reckons, unless you own one of the very biggest ones. He likes the world’s two biggest — Canada’s Barrick Gold (TSX/NYSE-ABX) and American-Australian-Canadian giant Newmont Mining (TSX-NMC; NYSE-NEM).
Barrick trades at $41.47 and yields 1.1 per cent on its 42¢ dividend. Newmont is at $50.67 and yields 0.9 per cent on its 43¢ dividend.
Mr. Larkin of Standard & Poor’s takes a similar view of gold stocks. If the idea is safety and preservation, he says, investors are better off owning a fund rather than just one stock. A gold mutual fund, or SPDR Gold, or even gold coins are a sounder bet than stocks, in his opinion.
Mr. Christian of CMP chimes in with his views on how much weight gold should have in your portfolio. “Generally speaking, I look to have 5 to 10 per cent of an individual’s assets in gold,” he says. “However, I also have investors who have anywhere from 20 to 40 per cent of their assets in gold — which is probably too high.”
He expects investors to start shifting out of bullion — gold bars and coins — and into gold stocks as the year goes on.
We’ll leave the last word to Mr. Leckey. No matter how respectable gold may look these days, it is still volatile. Don’t be dazzled by the glitter, he says, let gold cast “a modest gleam” in your portfolio.
|
E-mail this article
Printer-Friendly
