Is Gold No Longer an Attractive Commodity?

The news that the price of gold futures fell yesterday and that gold has only achieved modest gains in the second quarter of 2009 anyway, suggests that the appeal of this commodity is perhaps waning – amongst smaller investors anyway.

So is gold no longer an attractive commodity?  Or is it still worth an investment as a way to hedge your bets?

We believe that gold is, and always will be, a good investment – even if it’s only in the form of a piece of attractive jewellery!  So in this report we’ll take a look at the fluctuating fortunes of gold, and why it should perhaps form part of your long-term portfolio strategy after all.

Gold future prices fell on Wednesday, (29th July 2009), as stated, and in the second quarter of 2009 they rose only to USD 934.50 an ounce on the London PM fix compared with the level they were at at the end of the first quarter – namely USD 916.50 an ounce at the end of quarter one.  Inflationary fears have been responsible for eroding both the value and the appeal of gold, and now smaller investors seem to be losing interest in the commodity.

When the US dollar and the British pound were being hammered by other international currencies, when the global economic outlook was devastatingly negative and the US dollar was even being questioned about its right to be the world’s reserve currency, gold prices flew.  But now that the US dollar has regained some strength and yet the outlook for the American economy is still gloomy, trade in gold seems to be weakening.

According to the Telegraph, investment into gold ETFs and everything from coins to small bars has slowed right down.  And according to Reuters, the value of dollar-denominated gold traditionally declines in overseas markets when the US dollar gains strength – and as mentioned, the dollar has indeed seen a small reversal in its fortunes with a rally in oil prices and the stock markets stalling meaning that there has been a revival in safe-haven demand for the dollar.  All of this has knocked the value of gold and the appeal of the commodity as a result.

However, it should be noted how strong gold prices became when confidence in every other form of investment commodity – from real estate to currencies, from the stock market to your own personal bank account – fell to record low levels.  Everyone turned to gold as a way to safeguard their wealth – everyone from your next-door neighbour to the chairman of your national bank!  So the appeal of gold is universal – therefore it can make sense for those who want to diversify their portfolio completely and utterly to consider having some direct exposure to gold.

Whether you prefer to hedge your bets only as far as balancing between one bank and another or between property and stocks and shares, you need to speak to a financial adviser about whether exposure to gold suits you and your risk profile.  Only with the aid and assistance of a trained financial professional can you discover what gold can do for your portfolio, and how you should directly access the commodity if it is deemed appropriate for you.

Finally don’t take our word for it – according to the Telegraph’s report: “[a] recent study, which examined the relative performance of four traditional inflation hedges (gold, real estate, Treasury Inflation-Protected Securities (TIPS) and general commodities), found that in two of the three historical scenarios gold would likely outperform other traditional inflation hedges.

“The study also found a strategic case for gold in the portfolio of an investor that already holds TIPS, due to the additional diversification benefits gold brings to a portfolio.”