Why gold-related investments may have a long-term place

Wells Fargo Advantage Funds ® September 2012 Why gold-related investments may have a long-term place in investors’ portfolios Melissa R. Duller, CIMA®, and Olivia Barbee, CFA Wells Fargo Funds Management, LLC One of the best-performing investments over the past decade has been a nontraditional investment—gold. The price of physical gold rose from $313 per ounce at the end of August 2002 to $1,692 per ounce by the end of August 2012—a rally driven by a substantial increase in investment demand. (See Chart 1.) Chart 1 Gold prices from 2002 to 2012 demonstrate growth in demand for gold over the past decade 2,000 900 1,800 Gold price Inflation-adjusted price 800 1,600 700 ) $ ( e 1,400 c i ) 600

r $ p ( d 1,200 e e c t i 500 s r u j p 1,000 d d a l - 400 o n o G 800 i t a 300 fl n I 600 400 200 200 100 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg, 8-31-02 to 8-31-12. Past performance is no guarantee of future results. No single explanation accounts for gold’s rise. nonetheless believe that investments tied to the metal However, precious metals are often used as a hedge have an enduring place in many portfolios because against political and economic uncertainty, in part of its favorable supply/demand dynamics and its because these metals, particularly gold, are seen historically low correlation with other asset classes. as an enduring and portable store of value. The continuing aftershocks from the 2007 to 2008 credit Increased demand, limited crisis—including ongoing worries about the potential supply bode well for gold-related for debt defaults within the eurozone and debates about the U.S. debt ceiling—have served to increase investments investors’ interest in gold as a risk management tool. Rising wealth and the broadening middle class in Although gold’s long-lived rally and recent pullback developing countries such as China and India have have led many to question gold’s future trajectory, we supported the long-term trend toward increased gold purchases. Gold jewelry is a traditional gift at Indian U.S.). According to the World Gold Council, Russia has weddings, and both the Chinese and Indians view it as more than doubled its gold holdings over the past a distinctive symbol of wealth and a form of savings. five years. We also anticipate that increasingly affluent Chinese Chart 2 Sovereign gold holdings (in tonnes) have and Indian investors will purchase gold in part as begun to rise, creating another source of demand an investment alternative to stocks or real estate. 34 Such buyers tend to accumulate gold even during ) s d uncertain markets. 33 n a s u o “Chinese investors want to own assets, but they 32 h t ( s believe that real estate is overvalued and that stocks e 31 n n are manipulated by the government. So, they look o t c i to gold,” says Michael Bradshaw, portfolio manager 30 r t e of the Wells Fargo Advantage Precious Metals Fund. M 29 “Economic growth in China will likely remain sizable, even...

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