Category Investments

There is a place…

01 October 2004 Angelo Coppola

Theo van der Lingen at PSG Fund Managers reports that they continue to believe that gold belongs in local and offshore portfolios.

As we have explained before, Exchange-Traded Funds (ETFs) are US securities certificates that state legal right of ownership over part of a basket of individual share certificates.

The impact of a truly liquid, low-cost ETF representing pure gold and available to any investor or fund is worth considering not only for sector speculators but also for conservative asset allocators.

Despite a lengthy delay, the Securities and Exchange Commission (SEC) recently confirmed that a gold ETF is on its way in the US.

Expected to be sold under the streetTracks ETF line from State Street, it appears likely to begin trading before the end of the year.

The case for gold can be hard to make on fundamental valuation grounds since it is not a source of economic output like shares (representing companies) and does not deliver cash flows like bonds.

On the other hand, gold is an asset class that has performed well in recent years and is so unique that it deserves a separate analysis.

As we have often said before, the value of gold as a diversification tool was never proven more than in recent years.

The point is made with precision in the following table of five-year simple correlations against various US asset classes:

Only one of these broad asset classes, JP Morgan's Treasury Index (composed of a blend of maturities), showed positive correlation with gold. Otherwise, gold was a great place to hide when the bears came out.

Health warning: this article should not be construed as offering advice. Consult a specialist.

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