Should Gold Be in Your Investment Portfolio?

Mar.19.09 | About: SPDR Gold (GLD)

I have talked a lot about gold here. The reason is I am a believer that gold, not physical gold though, should have a place in the portfolio, not exactly for hedging against information but for diversification. Take a look at the performance of the stock market and gold since 2007, for instance. After reaching the all-time high in October 2007, the Dow has lost nearly half of its value, while during the same gold has actually gained about 10%. Of course, if you only have something like 5% of your investment in gold (invested in GLD for example), the gain won’t do much good to your portfolio as whole if the equity portion of your investment has tumbled 40 - 50%, but still that’s the little help we can always use.

Thursday, spot gold again surged more than 7% after the Fed announced yesterday that it plans to buy up to $300 billion long-term Treasuries in a bid to halt the economy from sliding into even deeper recession. The move immediately stirs up inflation concerns among investors, who then traded gold from down $30 an ounce yesterday to up nearly $70 today. That’s a dramatic turnaround. The

TIME Wednesday published an interesting article on gold, discussing whether gold is the safest investment. The most amazing statement I read from the article is this:

At such high prices, gold ceases to have much practical use. There is no theoretical rationale why anyone should even want to invest in it. Gold has value only because we believe it is valuable. It is a collective hallucination.

This view is probably held by many who believe that gold’s gain is nothing but speculations (if gold price going up only because of traders’ fear of inflation, then that’s speculation). But then again, as the TIME article pointed out,

Gold, then, can be considered a currency, unique in that it is not directly tied to any country’s economy. With a global recession that is bound to continue to shake up the purchasing power of all foreign currencies, gold is safer from political and economic instability than cash.

What do you think? Are you investing in gold in any form, stocks, mutual funds, ETFs, coin,s bars, or even jewlery?