The sharp rally in gold prices recently has me thinking about the role of "alternative investments" in an investment portfolio. "Alternative investments" are a wide group, including gold, commodities, and REITs (Real Estate Investment Trusts). They're basically any asset class that typically moves in the opposite direction of stock prices.
I think many investors equate "alternative investments" with "speculative investments." But there's a strong case to be made that "alternative investments" can often offer asset diversification, as well as capital preservation during inflationary times. They can often act as a cushion during brutal stock market sell-offs.
For that reason, many financial planners are encouraging their clients to have some small exposure to alternative investments in their portfolios. The typical guidelines are 5-15% of total assets, depending on your age and risk tolerance.
That said, I'd be wary of buying gold at current levels. But, the experts seem to disagree with me. As you'll hear in my report in tonight's program, Thomas Winmill, Portfolio Manager of the Midas Fund, thinks the precious metal is headed to 1200 an ounce, more than 20% upside from here. And he's been right so far this year. According to Morningstar, his fund has gained almost 40% through August 31st. So, take my view with a grain of salt.
What's your view? Are you interested in buying gold and other alternative investments? Do you think they're appropriate for regular investors? Or do you think they're better left to the pros, and most people would be wise to avoid them?
Comments
I think people need to be less prone to emotional volatility and need to focus on strategic trends - which can be spotted right now. Apart from dollar weakness, one should realise that gold is the only metal NOT consumed (like silver or platinum) - it is inherently desireable, as it was for thousands of years, which is not likely to change now.
Impeccable timing! Gold is attempting to break out of a 18 month basing period and will in my opinion likely reach around $1400 if it succeeds. After that $1800 - 2500 would not be impossible, but will depend on investor demand and economic/monetary circumstances. I think current production cost is in the $400 - 500 range. Since it last spiked in the early 1980's timeframe gold has been below $500 most of the time and below $300 for many of those years. Just for some perspective... If I decide to participate, my preference would be gold/silver mining stocks.
I'm holding on to some gold and other commodities, about 10 percent as suggested. I sold nearly all the platinum I had when it suddenly went from 900 to 2400, as that was clearly not a sustainable price (it came back down fast). If gold suddenly tripled in value while inflation in the dollar stayed stable, I would sell most of the gold too. I can always buy it back after it crashes again.
The commodities are subject to more huge swings in value than even our current stock market, so be ready to watch the markets every day if you invest in them.
Realistically, gold will never fall in price to the point where it becomes cheap for the average consumer. Its production costs are significant and it has great intrinsic value due to its unique properties, putting a significant upper bound on supply and a lower bound on demand. Its affordability will always be somewhat low, but its price in dollars can go anywhere depending on changes in the value of the dollar.
For every dollar the Federal Government spends, it borrows an additional 86 cents.
Gold at currant levels... Humm.. the Federal government is borrowing 86% of it current spending, and has plans to spend trillions more.
Every nation on the planet is printing.
Jim Rogers also says Gold at this level could be driven down by IMF selling. That means the sneaky bastards on Wall Street my be driving up gold, just so they can sell at a high level,gleen a huge profit then crash the market, and technically damage it.
In the short run.. gold price will be determined by the value of the USD and the value of the dollar can be deternimed by interest rates.
In the long run, Gold, Silver, oil, Natural gas, Ag commodities, and industrial metals look like the way to go.
I back up my mouth with my investments.
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Lets not forget, Goldman Sachs can put the price of gold just about anywhere they want, they control the commodity market.