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Latest Bullish Sign for Gold: Central Banks Are Big Buyers
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CNBC.com Senior Writer
Nichols notes that large mining companies like Barrick Gold [ABX
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] are buying back previous sales so shareholders can continue to get exposure. He also echoed comments of other advisors who feel gold dips have been treated as buying opportunities.
"However, if these players stand aside for any reason, gold prices could drop precipitously, and this would be an opportunity for investors to establish or augment their own positions," he wrote.
Potential for sudden moves in gold's price, though, is scaring off some investors who worry that the gold run can only go as long as conditions such as dollar debasement stay ideal.
"The downside with gold is that it has a volatility that is a whole lot greater than bonds and even greater than stocks," says Tim Courtney, chief investment officer at Burns Advisory Group in Oklahoma City, Okla.
Past gold rallies have always preceded inflation, says Courtney, who believes that with inflation being almost wholly discounted as a threat, gold probably has hit its peak.
Nonetheless, he understands why investors want it in their portfolios.
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"If you want to have a small piece of your portfolio invested in gold, go ahead but I would not rely on gold being a stable contributor over long periods of time," Courtney says. "History has shown it does not offer the kinds of returns that you need to grow your wealth, based on the amount of inherent volatility that gold has."
That hasn't deterred gold bugs, though, who see the metal benefiting not just weakness in US dollar but also currencies around the globe. Numerous developed nations are allowing their currencies to devalue as a way of making goods cheaper to buy and thus reflating their economy.
Cabot Management's Lutts thinks $2,000 gold is a strong possibility for 2010, though he acknowledges there will be bumps and bruises along the way.
"It's not going to be a straight line," he says. "There's going to be periods of concern and people are going to be selling. But it's very clear to me that investment dollars out there in the world today have a very high regard for things that can protect their value against deteroirating currencies.
Investors should allocate about 15 to 20 percent of their portfolios towards gold, says Lutts, who advocates gold-based ETFs including the GDX miners' fund as well as the SPDR Gold Shares [GLD
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], which holds physical gold; as well as the lightly traded PowerShares Global Gold and Precious Metals [PSAU
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], which seeks to replicate the Nasdaq Global Gold and Precious Metals index.
Only when the gold bull market hits the love-affair stage and too many buyers step in will Lutts think about getting out.
"I would probably cut my positions significantly (then), take profits and try to judge then the love affair," he says. "You'll know you're in the love affair phase when you go to Thanksgiving dinner and everybody tells you how much gold they're buying."
Data is a real-time snapshot *Data is delayed at least 15 minutes
