Financial Management
"Suddenly, Gold Isn't Looking So Solid"
This article (Sommer, 2011) examines the advisability of including gold in a typical investment portfolio. The article analyzes arguments, both historical and current, in favor of and against investing in gold. The article concludes with a very qualified recommendation, advising investor caution.
Sommer's article debates the question of whether gold, given its high volatility, should be included in a typical investment portfolio. He presents arguments that there is no simple answer.
The popularity of gold is well established, with gold having served as the standard of the global monetary system until the 1970s. Even today, gold maintains a certain appeal during an era of wildly fluctuating financial values. Many consider gold a mainstream investment, as evidenced by the fact that a gold exchange-traded fund, SPDR Gold Shares, was the second-most popular ETF in the U.S. On April 30 (Sommer, 2011).
Yet, for all its popularity, gold behaves in many ways like just any other commodity, like oil, silver, wheat or pork bellies, subject to the vagaries of the markets and, recently, to an unusual level of volatility. It has dropped more than 4% during the month of May, after more than doubling in value since October 2008. Given these characteristics, does it make sense for the long-term investor to hold gold? (Sommer, 2011).
Leading asset management firms offer different answers. T. Rowe Price and Fidelity include allocations of gold and other commodities in their target-date mutual funds, that is, their standard portfolios that are intended to be all an investor needs until retirement or later. Vanguard, on the other hand, does not include gold or any other commodity in its target-date retirement funds or any other core funds. For a basic portfolio, Vanguard considers commodities to be superfluous...
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