Malcolm Wheatley argues that gold makes a poor long-term investment.
During the darkest days of the financial meltdown, it wasn't unusual to come across articles touting the attractions of gold. With banks collapsing, and currencies plunging in value, the message was clear: gold is safe, simple and secure.
It's also a lousy investment. Gold pays no interest, can be lost or stolen, and can fall in value. Today, at the time of writing, an ounce of gold is trading at around $920 -- down from the $973 it touched in late February.
To add insult to injury, if you've got more than a very modest amount of the stuff, you'll probably want to pay for safe storage in a vault somewhere. Here at The Fool, we think that a decent investment should pay you to hold it, not the other way round.
Yet the solicitations to invest in the metal still arrive. Protect Yourself From the Coming Financial Storm! Buy Gold!
Gold has its uses...
There's no doubt that in times of true economic collapse, gold can come in very handy -- provided that you can keep it out of the hands of those who'd like to relieve you of it. In parts of the developing world, where wars and collapsing currencies feature more prominently in investors' minds, a stash of gold may well make sense.
But whatever the doomsters say, such circumstances are rare in Europe, and even rarer here in the UK. You'd have to go back to the Second World War to find a time when holding gold made sense from that point of view.
That said, it is possible to profit from the stuff. Three years ago, for instance, at the beginning of January 2006, gold was trading at $500 an ounce. Over the following three years, it's almost doubled in price.
Unlike -- one has to say -- the stock market. The FTSE 100 declined from 5,618 in January 2006 to 4,400 (and promptly went even lower in February and March, of course.) Go back a further three years, to early 2003, and gold's trading range was around $300.
Better still, you don't have to buy physical gold, in the form of bars or coins. If you're convinced that the price of gold is going to rise even higher (and I've seen predictions of $1,500), then an Exchange Traded Fund or Exchange Trade Note is handy way of capitalising on the rise in price. Lyxor's ETN Long Gold (LTNG) is one such, and iShares' COMEX Gold Trust (IAU.IV) is another.
But its bull run will end
However, be aware that gold's present popularity may not last. I certainly won't be putting any of my money into gold, in either its physical or ETF form. As my Foolish colleague Bruce Jackson pointed out last week, four decades' worth of data demonstrate that gold is a riskier and lower‑returning investment than pretty much any other.
Another way of gaining exposure to gold is to buy the shares of companies that mine the metal -- at least they may pay you a dividend.
Peter Hambro Mining (LSE: POG) is one such, and Randgold Resources (LSE: RRS) is even a member of the FTSE 100. Much more speculatively, mining minnow Stratex (LSE: STI), which prospects for gold in Turkey, has found favour with some of the Fools on our Mining Sector board.
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