Is There Gold In Your Future?
Some investors believe the record price of gold is flashing a giant warning sign that inflation is directly ahead.
Another warning? Global monetary policy is now the loosest since the 1970s and money supply is growing almost three times faster in emerging countries than in the developed world. That's the direct cause of inflation.
So in an environment when the dollar may possibly be only able to buy half as much as it does today, what you want is something that maintains it's value notwithstanding the value of the dollar. Gold has done that.
Tom Winmill, of Midas Funds, believes gold is a good hedge against inflation.
" It's done that for over three thousand years since the time of the Sumerians and we don't expect that to go out of fashion any time soon. Gold maintains it's value.
" What we suggest," said Winmill, "is for investors to look at their overall portfolio's, their IRA or their 401K and consider making some investment, 5 or 10% in a hard asset, such as a gold fund. His fund is a hard asset fund, meaning they invest primarily in gold mining stocks, gold bullion, silvermining. These types of investments tend to keep their value in an inflationary environment."
So how much risk should you take on?
" Our time frame for investing is three to seven years. If you're older, in your 50's or 60's and looking for income down the road, put only 5% in a fund such as Midas. It's volatile. If you're younger, with a longer horizon, 10% might be appropriate."
So what about people taking advantage of the high price of gold by cashing in any valuables lying around?
" If one can find money in the closet to reduce credit card bills or other high interest expenses," said Winmill, "I think that's a good thing to do. Cashing your gold in to reduce current expenses, interest expenses, I think is a very wise thing to do. But it doesn't substitute for a long-term strategy. The cash for gold world is not a good world, I think, for investors to preserve value."
For more information:
http://financialpost.com/story.html?id
search for author jchevreau
http://economistsview.typepad.com/economistsview/inflation
