Skip to main content
rss feedour twitterour facebook page linkdin

Financial Happenings Blog
Tuesday, November 06 2007

There was an interesting article in today's (7th November 2007) Australian newspaper.

It looked at the collapse of a gold trading scheme - the Gold Link Income Plus fund.  The fund had traded in gold derivatives, and the article reported that the trading had taken a position on gold prices falling.  Of course, gold prices have surged lately and the fund lost much of the money.

The key person behind the fund - Mr Kovac's - was paid fees for managing the fund to a private company.  Over the last 16 months he was paid $9.7 million while the fund lost more than $100 million.

Investors are likely to lose around 80 cents for every dollar that they have invested.

A question that this begs is, does gold have a place in investment portfolios?

My opinion is that it does not.

Firstly, I continue to focus on investments that produce an ongoing stream of real earnings for investors - whether they be cash assets, fixed interest assets, real estate assets or shares (part ownership of a company).

Secondly, the historical returns from gold have not been that good.  Over the past 50 years (1957 to 2007) gold has risen in value from US$43 to US$808 (source Global Financial Data).  Sound impressive?  That's a return of spot on 6% a year.  Remember there are no income, interest, rent or dividends - all an investor receives is the increase in value of 6% a year.  And that is a terrible return over that period of time - particularly given the volatility of gold prices.  Not so long ago gold was trading at less than $300.

For all the arguments about gold I really can't see any justification for its place in a portfolio.


Scott Francis

Posted by: Scott Francis AT 10:19 pm   |  Permalink   |  Email
Request for Information 
If you have questions, or would like more information, please go to our Contact page and leave your name and contact information.