|Copyright:||(c) 2011 The New York Times Company|
|Source:||New York Times Digital|
A RICH man carrying a heavy bag of gold coins set sail on a voyage, but his ship ran into stormy weather. Before it capsized, he attached the bag of gold to his waist and jumped overboard. He sank with his fortune, never to be seen again.
“Now, as he was sinking, had he the gold? Or had the gold him?”
The English critic
Although gold is certainly alluring, the answer isn’t simple.
That gold has been wildly popular — at least until commodity markets plunged — is indisputable, and not just because of its gleaming beauty. It served, after all, as the immutable standard of the global monetary system until the 1970s, a status that has helped give it a certain appeal in an era of wildly fluctuating financial values.
As a measure of gold’s acceptance as a mainstream investment, a gold exchange-traded fund — SPDR Gold Shares, offered by
But despite the yellow metal’s sometimes mythic appeal — well documented in
It has been behaving much more sedately than its sister metal, silver, which has lost more than a quarter of its value this month, after rising nearly 400 percent since
Which brings us back to the question: Does it make sense for a long-term investor to join in this jolting race?
Leading asset management firms provide very different answers.
But Vanguard does not include gold or any other commodity in its target-date retirement funds or any other core funds. For a basic portfolio, it considers them superfluous and highly volatile.
“We recognize that some people may want an exposure to gold for their own reasons, and that’s fine if they do,” said
In a strict sense, commodities may not even be an investment asset class , because they don’t produce any cash flow or earnings or dividends. That’s the view of
“A bar of gold is just a bar of gold,” he said in a telephone interview last week. “It doesn’t do anything. There’s a market for it, sure, just as there is for, say, a work of fine art, and if you buy and sell at the right price, you’ll make a profit. But if there’s no cash flow, no dividend, no earnings, how do you calculate its intrinsic worth?” Answer: “You can’t. It’s not that kind of an asset.”
In the 1980s and ’90s,
He concluded that eight asset classes — none of them gold or any other commodity — were all that an investor needed. For a model “moderate risk” portfolio under normal market conditions, he said in the interview, those eight and their allocations are: stocks from developed markets, 49 percent; emerging-market stocks, 6 percent; investment-grade bonds from developed markets, 25 percent; emerging-market bonds, 2 percent; high-yield bonds, 3 percent; commercial real estate, 10 percent; and private equity and venture capital combined, 5 percent.
All but the private equity and venture capital portions can be bought through low-cost index mutual funds or E.T.F.’s.
Is there any use for gold and other commodities in a diversified portfolio? There might be, he said, if you view them as a form of insurance against a specific risk and if the price is reasonable. Gold might be seen as a hedge against inflation, he said — although it has underperformed since 1980. It might also be viewed as a hedge against a decline in the value of the dollar, but at gold’s current level, he said, “you’re paying a very high price” for it.
ONE argument for putting up with the volatility of commodities like gold is that their long-term price trend is upward. That’s the case made by
“Commodities and gold, from an asset-class standpoint, are in secular bull markets” because of the growth of resource-intensive emerging-market economies, he said. (
Of course, it’s much easier to discern trends after the fact, and on that score the picture for gold isn’t entirely attractive. It peaked in price in 1980 at
It’s a beautiful metal, certainly. Is it worth holding? Maybe, but don’t bet your life on it.