A report in the Telegraph today quotes Cazenove’s Robin Griffiths as saying that not owning gold during the current financial turmoil is “a form of insanity”.
Griffiths is a technical strategist at Cazenove Capital who believes that the US dollar is heading for “oblivion” and that investors should be looking for short-term falls in the price of gold as a “buying opportunity”.
He goes on to say that “I think not owning gold is a form of insanity. It may even show unhealthy masochistic tendencies, which might need medical attention,”
This is a pretty strong opinion.
Our own view of gold is that investors should be very cautious about buying this asset class, for several reasons.
There is every chance that, at its current price, gold represents an asset bubble. With the price of gold struggling to get into the $1,400 to $1,450 trading range, as interest rates around the world start to rise we could see the recent momentum associated with the gold price grind to a halt.
Perhaps a more important reason for being cautious about adding gold to a portfolio is the existing exposure that many investors have to this asset class through their equity holdings.
Commodity shares, which benefit from an increase in the price of gold and other precious metals, make up a big part of the UK stockmarket. Investors are likely to already have a significant exposure to what the price of gold is doing, often without realising this exposure is in place.
It is also important to remember that gold is a non-income paying asset. Unlike cash, bonds, equities and property, gold does not come with a yield or dividend which can contribute to the total return from the asset class.
Rather than not owning gold being a form of “insanity”, we would argue that not having additional direct exposure to gold within a portfolio is actually very sane.
Photo credit: Flickr/Brooks Elliott
