Going gets tough, gold loses lustre

Published in the Herald Sun, November 2011 by Karina Barrymore

Gold is losing its shine as a safe haven during a financial crisis, with investors 1g back to income earning assets such as bonds, blue-chip shares and property.

Although gold has traditionally been seen as a safety net, this does not always apply when things get really rough.

Given the severity of global conditions, especially in the eurozone, it is now one of these times when the shine has been wiped off gold.

Many investors are starting to realise that not only does gold not offer an income but its price has become too unpredictable.

"There are limits to gold's safe-haven status", ForexCT head of research Steven Dooley said yesterday.

"When things get 'fairly' bad, then gold remains favourable. But when things get 'really' bad, gold fails to attract investors," Mr Dooley said.

Typically, gold is used as a hedge against big losses in other investment markets such as shares or property.

However, during the ongoing global turmoil, investors are starting to shun the gold market amid concern that gold can't keep its value amidst all the market gloom.

"Gold's value is based purely on the whim of the market," Mr Dooley said.

"A company or a property will have fundamental (investment) factors such as earnings and yields which influence the value. Most assets like property, shares and bonds provide a yield, which provides some level of certainty to the price over the medium term.

"However, gold, like all commodities, has no yield and so it is a very different animal to traditional investments. Gold's price moves almost entirely on market sentiment. If the market is cautious or fearful gold will go up. If the market is bullish or greedy the price will go down," he said.

Price-only assets, which are investments that do not have an income but rely on the market price of the day, can catch investors "off guard", the researcher said.

"Investors who see it as the ultimate safe haven can be unpleasantly surprised by how fast the gold price can drop."

Fund manager Wealth Within analyst Dale Gillham agrees gold has recently lost some of its attractiveness to investors but adds that doesn't necessarily mean it is not an asset to consider.

"Right now gold is taking a breather from its recent rise. This is a natural part of a cycle with any investment," Mr Gillham said.

"If you don't understand the risks, you need to think seriously about why you have put your money there."

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