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MARKET COMMENT
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Gold prices have soared from $348 an ounce on 1 January to $405 an ounce today. That is an increase of 16%, and much has been made of gold breaching the $400 barrier. A few months ago I said gold, which was trading at $365 an ounce, looked very expensive. Even though the price of gold has continued to climb since then, I still think that gold is overvalued. At a superficial level, an appreciation of 16% may seem like a pretty good return over eleven months. However, the underlying return in sterling terms is nowhere near as impressive. The return drops to a mere 7%, given that the dollar has depreciated by some 9% since January. That is something anyone interested in investing in gold should consider seriously before plunging in. Gold has appreciated in value, not because it is seen as a good investment but because the dollar, usually perceived as a safe haven, has fallen in value. By inference, gold could just as quickly lose its allure when the dollar returns to favour. As of tomorrpw, 9 December, you can invest in gold relatively cheaply through a gold fund to be launched by the World Gold Council. Investor will be able to buy shares in Gold Bullion Securities, whose shares will be traded on the London Stock Exchange. Its shares are backed by gold bars, which will be kept in a London vault of HSBC (LSE: HSBA)(NYSE: HBC). Each share in Gold Bullion Securities, which is essentially a gold tracker, will represent one-tenth of an ounce of gold and should be worth around 2,380p based on today's gold price. Investors who are looking at diversifying their shares portfolio may find Gold Bullion Securities an inexpensive way of buying into gold. From that viewpoint, this listing is a welcome development. However, it is worth bearing in mind that using gold as an asset diversifier can result in lower overall returns, given that gold and shares are normally negatively correlated. And given that gold prices are driven mainly by investor sentiment, that, in my opinion, is a very good reason to steer clear. > Gold & Other Precious Metals discussion board.