Sunday, October 3, 2010

Experts disagree on gold-price rally

Gold prices have pushed above $1,300 an ounce and are up roughly 20 percent so far in 2010. Is the rally justified or just another bubble forming?

Investment experts aren't in agreement.

"The premise for owning gold is logical," wrote Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Worried that the Federal Reserve is set to employ about $1 trillion for quantitative easing, gold investors anticipate high monetary inflation."

Peter Morici, a business professor at the University of Maryland, cites inflation worries, the budget deficit, heavy issuance of government debt and the yawning U.S. trade deficit as factors pushing up gold.

"Global investors have little confidence in the management of the U.S. economy, and investors have taken refuge in gold," Morici wrote recently.

But David Robinson of Robinson, Tigue, Sponcil Private Wealth Management in Phoenix is wary about gold's rally.

"Clients have been calling and asking whether they should be owning gold," he said. "I tell them to buy an (exchange-traded fund) that holds a basket of commodities, with gold being one."

Robinson agrees that commodities including gold can help to diversify a portfolio, but he doesn't see it necessary to load up. He typically recommends that clients put about 2 to 3 percent of their assets in commodity funds. He also recommends similar stakes in funds that hold emerging-markets stocks, which he considers another good diversifier, and in TIPS or Treasury Inflation-Protected Securities.

Robinson's main gripe is that gold doesn't generate income or dividends likes stocks, bonds and most other assets. Nor does he view it as an especially good inflation hedge. People investing in gold today will depend on people buying it tomorrow for any returns, he noted.

But for the time being, gold investors are celebrating what has been a glittering year for the metal.

by Russ Wiles The Arizona Republic Oct. 1, 2010 12:00 AM

Experts disagree on gold-price rally

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