Gold cheaper as shares continue prolonged run
Gold prices are dropping, prompting suggestions now could be a good time for investors to add some of the precious metal to their portfolios.
Gold prices have been choppy in recent years but in US dollar terms, the price of bullion is down 13.5 per cent over five years and 7.7 per cent over the past year.
This week, an ounce of gold was changing hands for NZ$1807.
Traditionally, gold has performed well in times of market uncertainty and more poorly when markets have been strong.
Mark Lister, of Craigs Investment Partners, said gold was an investment class that polarised investors.
‘‘Some people have no interest in owning and holding gold but others think it’s great as a bit of an alternative asset, a hedge against uncertainty. If they’re a bit mistrustful of central banks, or fiat money, it has appeal.’’
A small gold holding in a portfolio would act as insurance, he said, and would be one of the few investment classes that should increase in value in times of serious geopolitical turmoil or major market disruption.
‘‘You buy gold hoping it never really works for you because it tends to perform well when all other investments aren’t.’’
The share markets have been through a long bull run, which may have dampened the recent price performance of the metal, though even recent periods of market and geopolitical uncertainty have not led to gold price recovery.
Rich Elliott, managing director of metal dealer MyGold, said gold was an asset class that had always had value ‘‘and it will continue to do so’’.
‘‘People look at it as insurance against events such as share market crashes … we are overdue for the next global financial crisis, in my opinion, and a lot of customers buying from us are buying for that reason … I’m expecting the next gold bull market to get under way soon.’’
But adviser Tim Fairbrother, of Rival Wealth, said gold was a different sort of investment to other asset classes, because it offered no income while it was held.
While shares might pay dividends and bonds offer interest payments, gold delivered only if it went up in value and returned capital gains.
He said he would wait until it was clearly increasing in value to buy, and then would try to sell before it reached its peak. ‘‘You don’t want [the price] falling over again before you sell it.’’
Currency fluctuations could also affect value.
He said holding bonds seemed a better bet for those looking for security.
Historically, shares in gold miners have fallen in periods of uncertainty – which is when physical gold is expected to outperform.
Elliott said buyers should only obtain physical bullion from a trader, rather than dabble in riskier gold futures.
Anyone who used leverage to trade in gold – borrowing to finance a deal on the assumption that the investment returns would make it pay off – could end up losing out. Leverage increases returns but also increases loss.
It is also possible to buy units in a gold exchange-traded fund.
Elliott said it was better to buy standard bars and coins, rather than limited-edition collectible pieces that were sold at a premium price.
You can then choose to store the gold at home, in a safety deposit box or sometimes with the trader from whom you bought it.
He said it was possible to start investing with a relatively small amount of money – you could begin with an ounce of gold.