Henderson Maxwell Private general manager and senior financial adviser Tony Davison said given the fact gold produces no income and tends to have a volatile price; it should be regarded as a speculative asset rather than purely an investment asset.
Part of the reason for its price volatility is due to the fact that the asset class has no link to the economy and is driven almost entirely by supply and demand, he said.
“It has very little industrial use so it’s really only for jewellery and that sort of thing, so it’s not linked to the global economy,” he explained.
Assets that are speculative should be limited in terms of their allocation, he said, noting that “any speculative asset should be below two per cent of the total fund”.
Mr Davison added that it may be better for trustees to invest in a gold ETF, if they are going to invest in the asset class, or purchase shares in a gold mine company to get exposure.
SMSF trustees are less likely to get “wrapped up in the emotional aspects of the gold market” that way, he said.
“We would probably err towards exchange-traded funds, where SMSF trustees can generally find liquidity, and they can generally get their money out when they want it,” said Mr Davison.
“Trustees might also be better off buying shares in a listed gold mine company. These companies are in the business of producing a commodity at a margin so my point would be that while you get the gold exposure from those companies, you also get the benefit of someone producing at a margin.”
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His statement that “gold has no link to the economy & is driven almost entirely by supply & demand” is an extremely ignorant comment what asset class in this world isn’t driven by supply and demand.Secondly if gold has no link to the economy then why does the price of gold go up in times of financial market volatility & why did it reach record highs at the height of the GFC and Euro debt crisis thats because gold is a hedge against inflation and deflation, it is a way to protect against financial uncertainty & times of geopolitical uncertainty, it increases in value as the USD decreases,its price increases in response to events that cause the value of paper investments such as stocks and bonds to decline.Although the price of gold can be volatile in the short term, it has always maintained its value over the long term while every single fiat currency over the long term has lost value.Gold ETF’s are unallocated so when you need the gold it wont be there.But I do agree about Gold shares
Did it not occur to this guy that those investing in gold do so to get out of the current economic model?
Did it not occur to this guy that those investing in gold do so to get out of the current economic model?
Tony you seem to be ignorant of the increased risk in preferring shares to the metal itself. To put it in ASIC terms (cooper review) one is to swim between the flags and the other is to swim at un patrolled beach where their were recent shark attacks. Not to mention control and security of ownership with the physical metal. Many ETF’s only provide a paper entitlement !
FYI
if gold is so irrelevant to an economy why are so many central banks accumulating GOLD in recent years ! and has been fundamental the global economy for over 5 thousand years !!!