Wednesday, May 15, 2013

Perspectives on Investing in Gold - The Private Client Reserve

Perspectives on Investing in Gold - The Private Client Reserve | US ...Perspectives on Investing in Gold Executive Summary More than at any time in recent investment history, gold has taken center stage in the conversation about how to potentially grow assets and protect the value of personal savings. With many raising concerns about the state of the economy, government financial stability and currency valuations, promoters of gold are trying to create a sense of urgency about the need to include holdings of the commodity in individual portfolios. Undoubtedly, many investors have been attracted to gold due to its recent dramatic run up in value. The price hike experienced in recent years is beyond the normal level of performance that gold has generated historically. While gold holds a reputation as a store

of value regardless of circumstances, a closer look reveals that many of the assumptions made about the expectations for gold may be flawed. These include: 1. Its limitations as a long-term investment. Gold does not easily fit into any of the typical categories that one would associate with typical investments. Perhaps of greatest concern is that speculative trading often seems to be the driving force behind price movements in gold. 2. Unlike items such as oil, steel or corn, gold is not a consumable commodity. Its price is not, for the most part, driven by traditional supply/demand factors that affect typical commodities. 3. Despite its reputation, the record of gold as an inflation hedge is spotty at best. Most investors can probably find better alternatives to help deal with the impact of the potential of a dramatic rise in living costs. Important disclosures provided on page 5. Recent hikes in gold are beyond historic performance levels and many of the assumptions made about the expectations for gold may be flawed. Important disclosures provided on page 5. Page 2Perspectives on Investing in Gold A Perspective on the New Gold Rush Gold has been making headlines in the investment world. With the nominal price of gold reaching record levels, many investors who have not been part of the rally are wondering whether they are missing out by not including the metal (or proxies for it) as part of their portfolio. Gold has a long generated a high degree of interest. While the metal has enjoyed periods of wild popularity and dramatic price increases, comparable to what we’ve seen in the current market, there are more significant questions about what proper expectations should be for gold within an individual’s portfolio. Although it carries a certain cachet as a holding with “intrinsic value,” a closer look at the historical record indicates that gold, as an investment, may not have the luster to match its reputation. Before shifting money into gold, investors should be sure to gain a proper perspective on the role it can be expected to play as a long-term investment and whether it even has a place in a typical individual’s portfolio. The “anecdotal” case for gold The desire to own gold has been ingrained in many investors throughout life. Fairy tales dating back centuries have centered on the appeal of gold as a valuable commodity (i.e., King Midas). The quest to...

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