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A Fin24 reader writes:
With the world economy that is in such a bad state, is it not better to invest all your money in gold, as it will never lose its value?
Even if all the currencies are on the ground gold will be worth much more, and you will be the man with the golden egg.
David te Brake, certified financial planner at Pioneer Financial Planning, responds:
To quote Tolkien, "All that is gold does not glitter".
That's my elaborate way of telling you to beware the modern generation gold rush.
Even though gold is up 565% since 2001 and has generally outperformed equities themselves, it's highly unlikely that this gold rush is sustainable.
To understand my cynicism towards the gold trend is to understand what factors drive the price of gold.
While the global supply and demand from jewellers, central banks and contrarian investors all influence the price of gold, the effect is small compared to the substantial impact the price of the US dollar and general investor sentiment can have.
With the US economy showing promising signs of recovery and the European Union likely to follow - albeit in its own challenging way - global market sentiment is on the rise.
This is likely to put a damper on the surging popularity of gold which we've seen over the past four years.
To put all you money in gold in expectation of the minuscule possibility of a global doomsday could be considered irrational and extreme.
Gold itself is not an income-generating asset such as equity, property and cash. It provides only a capital return whose price is predominantly determined by worldwide market sentiment.
In the unlikely event of a financial apocalypse, you would indeed be a wealthy man. But in reality, you are up against some global heavyweights in the form of politicians and economists, who are unlikely to let their countries fail and enter an all-is-lost scenario.
My advice would be to include a small amount of gold in your overall portfolio, providing a good hedge in the event that markets come off slightly over the short to medium term.
I would advise that this not be allowed to exceed 10% of anyone's portfolio, even for the most pessimistic and risk-averse investor.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
With the world economy that is in such a bad state, is it not better to invest all your money in gold, as it will never lose its value?
Even if all the currencies are on the ground gold will be worth much more, and you will be the man with the golden egg.
David te Brake, certified financial planner at Pioneer Financial Planning, responds:
To quote Tolkien, "All that is gold does not glitter".
That's my elaborate way of telling you to beware the modern generation gold rush.
Even though gold is up 565% since 2001 and has generally outperformed equities themselves, it's highly unlikely that this gold rush is sustainable.
To understand my cynicism towards the gold trend is to understand what factors drive the price of gold.
While the global supply and demand from jewellers, central banks and contrarian investors all influence the price of gold, the effect is small compared to the substantial impact the price of the US dollar and general investor sentiment can have.
With the US economy showing promising signs of recovery and the European Union likely to follow - albeit in its own challenging way - global market sentiment is on the rise.
This is likely to put a damper on the surging popularity of gold which we've seen over the past four years.
To put all you money in gold in expectation of the minuscule possibility of a global doomsday could be considered irrational and extreme.
Gold itself is not an income-generating asset such as equity, property and cash. It provides only a capital return whose price is predominantly determined by worldwide market sentiment.
In the unlikely event of a financial apocalypse, you would indeed be a wealthy man. But in reality, you are up against some global heavyweights in the form of politicians and economists, who are unlikely to let their countries fail and enter an all-is-lost scenario.
My advice would be to include a small amount of gold in your overall portfolio, providing a good hedge in the event that markets come off slightly over the short to medium term.
I would advise that this not be allowed to exceed 10% of anyone's portfolio, even for the most pessimistic and risk-averse investor.
- Fin24
Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.
Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
