Will the gold bull run continue? This is the billion dollar question haunting many investors across the globe. There are conflicting reports from various quarters.
A report in Press and Journal says that despite a recent dip, the price of gold has still risen by 25% over the past year, by 175% over five years and by a staggering 340% over 10 years.
So the yellow metal is attracting a great deal of interest from investors. It is a common trait for people to become more positive about an investment after it has performed well.
Analysts say that there will be sustained demand for gold, particularly from China and India, and there is only a limited supply. Gold is also perceived as a safe haven in times of financial crisis and a good investment to combat the effects of inflation.
Both of these are worthy characteristics considering the fragility of world economies and the underlying threat of inflation in both developed and emerging economies, however, this is only part of the story.
While the price of gold has risen by 340% over 10 years, over 20 years the increase has been only 215%, demonstrating that gold has not always been a one-way bet.
Gold does not produce any income, interest or dividends - essentially it just sits there. The price of gold therefore depends solely on demand and supply and how much people will pay for it.
There is the potential that price fluctuations can be volatile, particularly if large institutional investors pull out. If this happens, there is a risk that retail investors who have bought at the top of the market will be the ones who suffer. It is also interesting to note that even those investment-management firms that advocate investing in gold rarely allocate more than 5% of a portfolio to it. Indeed the majority seem to allocate between 1% and 3% of an overall portfolio.
If investors are keen to increase their weighting then their equity breakdown can be tweaked by using specialist funds such as BlackRock Gold and General and JPMorgan Natural Resources.
(Source: Press & Journal)