Britannia Radio

china confidential

 

As Good as Gold?

Is gold a good hedge against economic uncertainty? 

Heather Connon:

Just a month ago, investors were queuing to buy gold bars as the price rose by more than a fifth in just two weeks. Since then, the economic news has become gloomier - jobs are being lost across all industries, the Bank of England is warning of a prolonged recession and even the Chinese authorities have been forced into offering a stimulus package - yet gold has lost all its gains and stands close to the year's low.

Angus McPhail, global oil and resources analyst at Alliance Trust, thinks that is largely because gold is priced in dollars and that currency has risen sharply. But he thinks gold is still attractive over the long term, partly because of its status as a 'safe haven' during times of recession, high inflation and falling interest rates - as we are likely to experience over the next two years. But he also points out that South Africa, the leading producer of gold, is experiencing political turmoil, which could hit output, while demand for gold for jewellery and investment from Asia is expected to remain strong.

Justin Urquhart Stewart, marketing director at Seven Investment Management, agrees that gold could have attractions in the longer term, because inflation is likely to be stoked up by the government bank bail-outs and stimulus packages. But he expects the price to remain weak over the next year to 18 months as inflation and interest rates fall. He thinks investors who have no exposure to gold may like to have some in their portfolio, but no more than 5 per cent.

While you can buy gold bars directly, you can also get exposure to gold by buying an exchange-traded fund - a share that tracks its price, such as those offered by ETF Securities. General commodity funds, such as Blackrock's Gold and General, will also have some exposure to gold as well as investing in a range of other commodities.