YES, says John Mulligan of the World Gold Council:
"In a world where almost every asset class is under assault and confidence in the financial markets around the world has crumbled, it is not surprising that gold is again at the forefront of investors' minds.
Gold has been valued as a precious commodity and money for many centuries, but as an asset for consideration by the contemporary investor, it has only been in the spotlight for less than a decade. For small private investors, the imposition of VAT on gold bars and coins from 1973 until 2000 was a major disincentive. Since then, the deteriorating economic climate has led to a reappraisal of risk and a surge of investor interest in gold.
The continuing downward pressure on stock prices and a worsening of many national economies into deeper recession has led to renewed vigour in the search for assets that can provide security and wealth protection.
Investors have sought a store of value as the combination of increased money supply and the implications of governmental fiscal stimulus packages resurrect the spectre of inflation around the world. There is now widespread fear regarding the debasement of fiat currencies beyond the US dollar weakness, and gold has a long and proven history as an efficient currency hedge.
These factors have contributed to a record year for demand for gold in 2008, up 29 per cent in dollar terms on 2007 at $102bn. Identifiable investment demand, which includes exchange-traded funds and bars and coins, was 64 per cent higher, equivalent to an additional inflow of $15bn. The most striking trend across the year was the reawakening of investor interest in the holding of physical gold, with demand for bars and coins up 87 per cent over the year with shortages reported across many parts of the globe.
Investors have made impressive returns from gold's performance since 2001, particularly given gold's outperformance of most other asset classes in recent times. However, its real value is in its capacity to provide a sure and steady means of protecting wealth. Those who allocated a proportion of gold to their portfolio prior to the current financial crisis will now be benefiting."
See www.gold.org.
NO, says Alan Dick, financial planner at FortyTwo Wealth Management:
"With equities having posted, on average, negative real returns in each of the last 10 years, and with gold recently pushing through new highs, it's easy to see why the newspapers are full of headlines about how gold's time has come.
But my antipathy to the yellow metal is not really a function of its recent price performance, although I would contend that the vast majority of gold's gains over the past decade have come in the last 18 months, and that its performance prior to that was fairly pedestrian. Instead, it's founded on the difference between investment and speculation.
In my books, an investment is an asset that has the ability to produce an income, things like bonds, shares and property. In the case of shares, for instance, the price of the asset is, in theory at least, related to its income-generating ability - it's the net present value of future dividends. Income, rather than capital gains, is the basis for much of the long-term performance of such assets. You only have to look at the difference that reinvested dividends make to share price performance to see that.
By contrast, gold produces no income at all. Like all supposed 'store of value' assets, its value is entirely subjective. It's worth what someone else will pay for it. 'Investing' in gold is taking a punt on whether a greater fool will buy it off you for a higher price some time hence.
One can put together all sorts of arguments about supply and demand to justify the likelihood of such a greater fool materialising, but that doesn't change the fact that buying gold is simply speculating on a price movement. It's not investment.
It's for this reason that I consider all the usual arguments for buying gold, such as its low correlation with other asset classes or its supposed ability to protect the holder against inflation, to be flawed. Plenty of other forms of speculation, such as playing roulette or betting on horses, are uncorrelated with the bond or stock markets. This doesn't mean they are sensible portfolio diversifiers. You wouldn't buy stamps, antiques or wine to spread risks, so why should you buy gold?"
See www.fortytwowm.com.
