advertisement
In practice, however, that hasn't worked out recently. Gold bullion, as represented by StreetTracks Gold Shares, is up nearly as much, 29% annualized over the past three years. One problem for the miners: The cost of extracting gold has risen sharply, in part for environmental reasons. Gold mining is a filthy business that uses large quantities of toxic chemicals.
Owning physical gold has its own problems. It is so valuable it must be guarded while it's being transported or simply stored. The StreetTracks gold ETF (and others like it; several are sold in various countries) eliminates the hassle of handling the stuff but not the expense. When the StreetTracks fund came out less than four years ago, each share represented a 10th of an ounce of bullion. Today it's worth 98% as much. The difference has been spent for the fund's expenses, including storage in a London vault. Gold doesn't pay interest; it's a depreciating asset.
Giving into temptation
So gold is, by any reasonable standard, a lousy investment. But all of its blemishes are ignored the moment it becomes expensive. And it always seems to become more expensive when everything else, such as stocks and bonds, are in the toilet. That was true in the late 1970s, the last time it soared, and it's becoming true now as global stock markets correct and Treasury bond yields languish below 4%.For that reason I have about 2% of my retirement portfolio invested in the StreetTracks gold ETF. Actually, it was 2% of my portfolio when I made the investment. As of Feb. 5, the value was 2.36%, both because it had gone up and because the rest of my holdings had gone up less.
More from MSN Money
I do not, however, own it in the MSN Money model ETF portfolio that I report on quarterly.
And the reason is that I regard my own little stake as an eccentricity. It doesn't add meaningful investment gains. What it does is reduce the volatility of my portfolio by a few basis points (100 basis points equal 1 percentage point), and therefore it scratches the itch I get when the stock market is down. I can't put a price on that; it means something to me, but it might not mean anything to you.
- Video: Is gold headed to $1,000?
Or maybe that's just a rationalization, and the fact is that I covet gold as much as you do. I don't know. What I do know is that gold is one of those rare things that arouse passion, and when you're aroused, your brain doesn't get a vote. So go ahead and buy it. It's bound to go up. Eventually.
At the time of publication, Tim Middleton owned the following security mentioned in this article: StreetTracks Gold Shares.
< previous | 1 | 2 |
Rate this Article
High