Gold Investment

Gold has long been valued as an investment because it doesn't tend to move along with stocks or the dollar, analysts disagree over whether it makes sense to invest in now.

Gold, whose price hit an 11-month high Monday as the dollar weakened, is often seen as a refuge in times of economic uncertainty. Lately, with gold prices hovering below $700 an ounce, experts seem torn on its prospects. In any case, moderation is in order.

"I'm very bullish from the demand viewpoint," said Frank Holmes, chief investment officer at U.S. Global Investors Inc. He contends rising income in developing countries with a cultural affinity for gold _ particularly India where it is widely used in jewelry _ is a good sign for gold demand. Holmes noted that prices for gold have lagged those of metals such as copper, zinc, platinum and nickel. Those metals, he said, are in greater demand as countries develop infrastructure. Later, as such development increases economic prosperity, demand for gold begins to rise, he said.

"In India you basically buy gold with only a 10 percent markup so you wear your money," he said. He added countries with rising wealth, such as Russia, look to gold as a way to hold their national reserves, as occurs in the United States.

Even if demand increases, adding to supplies has become more difficult. Production has fallen from years past because it now takes longer to win approval for new mines and to shepherd them into production in part because of environmental concerns.

Even if production were to increase, however, prices might still increase. Gold, which came close to topping $700 an ounce in late February before pulling back, has seen prices follow the ebb and flow of political tensions in the Middle East.

Holmes also noted the gold often moves in a similar direction as oil; recently oil prices have climbed amid increasing demand, in part from developing countries like China and India.

Ultimately, while he contends gold can be a wise investment, he recommends investors not make it more than 10 percent of their overall holdings.

Not diving too heavily into gold but rather moving in as part of a larger focus on commodities could be a sound move, contends Michael Kimmel, an analyst at RegentAtlantic Capital LLC.
"Even though it's had a great return in the short term, it's not as good over a longer period," he said. "Inflation has outpaced gold, which hurts the investor's purchasing power in the long run." He cited the performance of gold over the past 30 years.

Kimmel describes gold as a very "frisky" asset class, noting its volatility could prove unnerving to some investors.

"We like to say it has all the volatility of stocks with the return of bonds," he said. But he added it often holds up well during tough times for stocks: "If the stock market is doing poorly and the dollar is weak, it's a great hedge."

So for investors concerned about a pullback in the stock market, the strength of the dollar or increased political turmoil, a moderate investment in gold can be wise _ if they're willing to stomach possible volatility.