In times of turmoil, the precious metal can shineby Ruth Jackson / June 16, 2016 / Leave a comment
For thousands of years gold has been treasured and collected. But in the 21st century is there any point holding it as part of your investment portfolio?
Gold fans have long argued that it offers an insurance policy for investment portfolios. “Gold tends to do well when other assets fall,” says Adrian Ash, head of research at gold trader BullionVault. Investors fall back on this rare and precious metal for its intrinsic long-term value and safe haven attributes.
“Some people will argue gold cannot be valued, and thus has no intrinsic value because it has virtually no industrial use, is inert and it generates no cash,” says Russ Mould, investment director at AJ Bell. But, that is also what gives gold its value. It has no secondary use other than as a safe haven investment, so tends to be unaffected by factors that can upset other investments. Further, gold carries no “counterparty risk”: a company that issues shares or bonds can go bust, leaving the securities worthless; a bank can go under, wiping out depositors’ cash. But gold does not rely on any entity’s solvency to underpin its value.
However, it can be a volatile investment, as investors have seen in the past five years when it has fallen back from a record high of $1,800 an ounce to around $1,280. “Gold investments aren’t for the faint hearted,” says Danny Cox, from stockbroker Hargreaves Lansdown. But over the long-term it has performed well, the price rising almost 300 per cent in nominal terms over the past 30 years.
A study by BullionVault shows that gold can also help to reduce the risk of a portfolio. If you’d put £100,000 into 60 per cent equities and 40 per cent bonds a decade ago you would now have £183,516, according to BullionVault’s research. Your portfolio would have had its worst year in 2008 with a 13.1 per cent drop but managed an average annual return of 6.6 per cent. However, if back in 2006 you’d put 5 per cent of your investment in gold and split the rest 60:40 between equities and bonds you would have made £5,000 more. Your losses in 2008 would have been reduced to 10.3 per cent and your average annual return would have been 6.8 per cent.
“The bottom line is…