Gold ETFs in a balanced 10 year portfolio

wombat42_2

What percentage of your portfolio might you consider putting into Gold ETF as a medium risk 10 years investment ?

cloud_dog

I think the general rule is 5%

jon3001

IMHO no more than 2.5-5%. Anything more is either speculation for gold bugs. Go overweight if you expect big problems.

Really this is portfolio insurance: when a crisis comes expect gold to surge while other asset classes may struggle. Then you can rebalance and lock in a return.

Gold is highly volatile and, as far as I can tell, has a long-term real return of zero - i.e. just tracks inflation.

If you want to diversify away from equities into an uncorrelated asset class that has historically has similar long-term returns and volatility then you could also consider, say, a 10% allocation to diversified commodity futures:

http://www.etfsecurities.com/cslf3/etfs_all_commodities_f3.asp

purch

I don't think you can approach an Investment in Gold, or similar asset classes in the same way you would look at a Stock or Fund investment. It is not something, that in my opinion you can put a time frame on for instance.

Currently Gold is very much on an upswing, and if you believe that Inflation will be a major concern over the coming year or two, and that 'major' cuurencies such as the USD and GBP will lose value then it is likely that the $1,000 level can be achieved. However, long before the 10 year timeframe is reached the whole situation could be reversed, and Gold could again lose it attraction, and trade at levels well below today's market.

Gold is traded in many different ways, and by many different counterparties for myriad reasons. The market is very much 'chart' driven and it is important that you are aware of these, and the levels they indicate. Gold has recently been following quite closely the trade weighted value of the Dollar (although it appears that this link is less important currently), and as the FX markets are likely to be extremely volatile this year, so will the value of Gold. Gold could very well trade in the $700's oz range again, before it breaks significantly above $900 oz

Bottom line is for me, Gold is not an investment you can buy and hold without thought to the wider picture. You need to be comfortable with the volatility, and understand what is driving the price at any one moment, and what this means for the longer term.

As for % of your portfolio. It really depends on what you are looking to achieve, and what level you are looking for the price to reach and in what timeframe. As a counterbalance to other parts of your portfolio, you could would only need a smallish % to offset risks to Stocks (> 10%)

cloud_dog

jon3001 wrote: »

Gold is highly volatile and, as far as I can tell, has a long-term real return of zero - i.e. just tracks inflation.

Isnt that a bit of an oxymoron? If it 'just tracks inflation' then doesnt this imply that it adds value, in terms of fiat currency, as opposed to actually losing value (purchasing power)???

I think most people would agree that you tend to hold gold in times of uncertainty both political and finacial, like we have now, rising inflationairy pressures, like we have now; so maybe its worth holing some

Purch's comment is spot on though, you cannot really look at an investment without really monitoring it periodically and re-assessing its inclusion in your portfolio, although the OP post header does say 'balanced portfolio'.

cloud_dog
p.s. have to admit I'm a bit of a gold (soft and hard commdities) bug for the time being. :A

jon3001

cloud_dog wrote: »

Isnt that a bit of an oxymoron? If it 'just tracks inflation' then doesnt this imply that it adds value, in terms of fiat currency, as opposed to actually losing value (purchasing power)???

Huh? Real return = return - inflation.

wombat42_2

As has already been said, there are a lot of factors determining gold price but one of them is that demand for gold is currently rocketing thanks to China and India.

jon3001

Okay. But it sounds more like a speculative purchase rather than allocating a portion in a balanced portfolio.

wombat42_2

jon3001 wrote: »

IMHO no more than 2.5-5%. Anything more is either speculation for gold bugs. Go overweight if you expect big problems.

Really this is portfolio insurance: when a crisis comes expect gold to surge while other asset classes may struggle. Then you can rebalance and lock in a return.

Gold is highly volatile and, as far as I can tell, has a long-term real return of zero - i.e. just tracks inflation.

If you want to diversify away from equities into an uncorrelated asset class that has historically has similar long-term returns and volatility then you could also consider, say, a 10% allocation to diversified commodity futures:

http://www.etfsecurities.com/cslf3/etfs_all_commodities_f3.asp

Its annoying that H&L dont seem to do that ETF. Looking at its composition though it does seem a little heavy on energy and agriculture (plus livestock) and a little light on metals.

purch

Of course HL will be able to trade in that ETF for you..........it's not listed as one you can trade online but if you call them they will get a price for you

Looking at its composition though it does seem a little heavy on energy and agriculture (plus livestock) and a little light on metals

Thats coz it tracks the Dow Jones All Commodities Index which weights equally all traded commodities

jon3001

wombat42 wrote: »

Its annoying that H&L dont seem to do that ETF[

Well - they do AIGC. But I think FAIG is probably superior in the long run because of technical reasons involving the roll yield on commodity futures.

wombat42 wrote: »

Looking at its composition though it does seem a little heavy on energy and agriculture (plus livestock) and a little light on metals.

By metals - did you mean precious metals or industrial metals? I was really suggesting commodity futures in case you wanted an alternative to equities and gold was your first port of call.

If you're bullish on China then won't energy and agriculture be good plays?

If you don't like the allocations on the diversified ETF then you could build your own from sector-based ETFs. Look elsewhere on the ETF securities site.