This past Monday I hosted a special live event for Blue Chip Growth, Platinum Growth Club and Navellier Family Trust members, and I was delighted to talk with many of you about where Wall Street is headed. This time around, I’ve received a lot of questions on the value of investing in gold, so today I’d like to present what I consider to be the pros and cons of the yellow metal.
Why Gold Now?
Gold is in the headlines because various geopolitical tension around the world (i.e. violence in Iraq, Ukraine and Russia) have pushed its price above $1,300 per troy ounce. Gold has gained about 9% this year so far, and with investor sentiment in Germany (Europe’s largest economy) at a 1 1/2 year low, it’s like that it will continue to climb.
The other thing that could boost gold going forward is the U.S. dollar. When the dollar is weak, commodity prices rise. For the past few years, the dollar has been moderately strong and inflation has remained relatively tame in the U.S. This has put downward pressure on most commodities like gold.
However, with the Fed hinting more at an interest rate hike further down the road, that trend is starting to reverse. We’re also seeing modest inflation brewing, so it appears that a weaker dollar is in our future.
But before you load up on gold, a word of caution. Gold does well when investors get nervous. But it still isn’t a perfect hedge against the market. The market could fall 13 days in a row—and gold could fall right alongside it—only to rally on the fourteenth day.
The Bottom Line:
With that said, I have nothing against holding gold. But before you invest in gold, know this: When you buy gold, you tend not to get any yield. So if you must buy it, I strongly advise that you pay close attention to the spreads on gold. And I would only allocate 5% to 6% of your portfolio to all metals, including gold, platinum, silver, etc.
If you’re really looking for metals and mining plays that give you bang for your buck, I recommend you take a look at the top stocks rated in Portfolio Grader.