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 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.

Cheers

Scott Francis

Posted by: Scott Francis AT 10:19 pm   |  Permalink   |  Email
 
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