In response to my latest dispatch on investing in gold, several readers posted some great questions on the strategy. For example: what percentage of assets should be in gold, and at what point should investors get out?
It’s a very difficult question for asset allocators, notes Shayne McGuire, portfolio manager for the GBI Gold Fund of the Austin-based Teacher Retirement System (TRS) of Texas, who also is managing director and head of global research at TRS. "At a 2009 gold symposium, a renowned global strategist said it might make sense to hold 1 percent in gold — but only sometimes. Then I went to a Hong Kong presentation last fall and a precious metals strategist said the percentage should be anywhere from 10 percent to 20 percent."
"This shows how Asians think about gold as a savings instrument, while for the U.S. gold is seen as a speculative asset," McGuire reasons. "Quite often it’s coupled with end of the world or some horrible situation — the idea of owning it because of a disaster."
Gold performs well when it’s 1, 2 or 3 percent of a pension fund’s portfolio, he says.
Another reader comments, "Income growth will continue apace, as will dividend growth, while gold, producing no income, will be left in the dust and will increasingly be accumulated only by central banks."
In response, TRS’s McGuire says that a lot of people see it this way. "What you’re really buying is just rocks that don’t produce cash flow. But look at the correlation with the stock market — when stocks are doing well, like before the credit crash, gold was doing fantastically well, and when stocks were not doing well, right after the deluge, gold still does well. So you buy gold because its value increases."....