“What about Gold?”

In times other than global recession it’s rare for the value of gold to increase significantly. It also tends to decline rapidly once markets improve and investors become more accepting to risk. Hence, investing in gold can become dangerous if you do not get the entry/exit strategy right. Relative to this current cycle, gold speculation should have been undertaken in 2008-9 and then again in April/May this year when the fear of a European sovereign debt collapse was being touted. Over this period we saw the gold price rise considerably. However, from its high in March 2009, its value has almost halved as world markets stabilize and conditions improve.

So if deriving capital growth from Gold is too tricky, what else is it good for? Aside from being nice and shiny of course. The answer is not a great deal. One of its major drawbacks is it does not pay a dividend or regular income stream, unlike property or equities. In a recent interview Warren Buffet was quoted as saying – “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more?”

But if you are still hell bent on having an exposure to gold in your portfolio, look no further than the world’s largest diversified minors BHP and Rio Tinto. Both companies have significant exposure to gold fields, as well as Iron Ore, perhaps a better play given China’s thirst for the base metal, not gold.