Going for the gold in your portfolio
I’ve been writing about gold since earlier in the year, and my Philadelphia Inquirer story today details why it’s still not too late to buy gold, even with the run-up this week to $1,800 an ounce:
Your Money: Going for the gold to improve portfolios
It’s a perennial favorite of some. Others are interested but don’t know where to start. Here are some tips.
By Erin E. Arvedlund
Gold always generates an emotional debate between opposing true believers: people who love gold (a.k.a. gold bugs), and people who deride the yellow metal as a “barbarous relic.” But with America’s excessive debt and negative real interest rates, gold lovers continue winning the argument.
After Federal Reserve Chairman Ben Bernanke promised Tuesday that interest rates would stay near zero until mid-2013, gold soared yet again as investors raced to the precious metal and gold-mining shares as a haven against inflation and a weakening dollar and as a way to protect their savings.
Continued low rates mean it’s still a good environment for more appreciation in gold’s price – even after the metal rose to a staggering $1,800 an ounce before dipping a bit at the end of trading Wednesday.
So how do mom-and-pop investors include gold in their portfolios?
There are a few ways: Buy bullion outright and store it (beware fakes and theft). Buy exchange-traded funds that own bullion on your behalf (watch out for tax consequences with these funds). Buy mining shares traded in the stock market (that have so far lagged the metal’s price).
Among the popular bullion options are American Eagle coins. U.S. Mint statistics illustrate that sales haven’t exploded as expected. Fewer one-ounce American Eagle coins were sold in 2010 than in 1999, when Americans snapped up roughly 1.4 million of the popular gold coins to brace against potential Y2K chaos, according to a July-dated Erste Group research report.
You can find a list of Eagle dealers online at the U.S. Mint (www.usmint.gov).
Other countries have their own gold coins: Canadian Maple Leaf coins and South African Krugerrands.
Exchange-traded funds and precious-metals mutual funds are other ways to add precious metals to your portfolio. Most advisers wouldn’t recommend having more than 5 percent to 10 percent of assets invested in gold and silver. You’re using most exchange-traded and mutual funds to bet on the direction of gold prices, not to cash them in for bullion.
More investors are seeking out the metal itself instead of paper-denominated gold assets. According to the World Gold Council, (some additions that were cut for space follow)…
Exchange-traded funds and precious metals mutual funds are other ways to add precious metals to your portfolio—most advisors wouldn’t recommend more than 5%-10% of anyone’s assets be invested in gold and silver. Remember, however, that you’re using most ETFs and mutual funds to bet on the direction of gold prices, not to cash them in for bullion.
Among the most popular are SPDR Gold exchange-traded fund (symbol: GLD), Sprott Physical Gold Trust (PHYS), Central GoldTrust (GTU) and iShares Gold Trust (IAU). Mutual funds include the low-cost Vanguard Precious Metals and Mining (VGPMX), Van Eck International Investors Gold (INIVX), USAA Precious Metals and Minerals (USAGX) and Oppenheimer Gold & Special Minerals A (OPGSX). The latter fund can also put assets in platinum, palladium and other metals producers. Beware: the I.R.S. will sometimes classify these holdings at an ordinary income rate so check tax rules with your broker before buying.
Gold mining shares have lately tempted hedge fund managers like billionaire George Soros, who swapped out of GLD recently and instead built up positions in Barrick Gold and Great Basin, Goldcorp and Eldorado Gold. However, more and more investors are seeking out the metal itself instead of paper-denominated gold assets. According to the World Gold Council, total demand increased in 2010 by almost 10% to 3,812 tons, or $43.7 billion. Physical gold accounted for the majority of demand, by jewelry makers, central banks and retail buyers. ETFs made up 338 tons and were thus down more than 40%. “It seems we are witnessing a shift from paper gold investments to the real thing,” added Erste Group.