Is gold still a bright investment?

Is gold still a bright investment?
Some believe the precious metal's decade-long run-up in price, which saw a gain of more than 300%, will continue. Others warn that the bubble has burst.
By Richard Burnett
Copyright © 2010, The Los Angeles Times
April 5, 2010
http://www.chicagotribune.com/business/la-fi-gold5-2010apr05,0,1453125.story


Orlando, Fla. - At least one-third of Kimberly Sterling's clients have sought advice in the last year about investing in gold. The Orlando financial planner has successfully discouraged all but one from doing so.

That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually she referred him to a gold-commodities exchange-traded fund that has done well during the metal's decade-long run-up in price. But her firm, Resource Consulting Group, still wouldn't buy in.

"Our bottom line is this: Gold is a bubble now, and it is too late to get in," she said recently. "It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly."

Anyone who did invest in gold 10 years ago has done well: The per-ounce spot price of gold has risen more than 300% over that time, hitting a record $1,226.56 in December.

Billions of dollars have flowed into gold investments in recent years -- including mutual funds, exchange-traded funds, futures contracts, even gold coins and bars -- as investors have ridden the ever-rising price wave. Jitters over the economy, the dollar and the federal budget deficit have fueled the trend; gold's value as a hedge against inflation is also playing a role.

"Gold is one of those things that pops up in times when there's uncertainty and crisis," Sterling said. "But when it pops, it is too late to get in."

Financial planner Al Baker recommends investing as much as 10% of a portfolio in gold, preferably in the form of well-diversified mutual funds.

"I disagree that this is a bubble we're seeing now," said Baker, of Resource Group of Winter Park in Florida. "Bubbles only last a short period of time, a couple of years at most."

Planner Cary Carbonaro is warier.

"It was great to get in about three or four years ago, but now you have to be much more cautious," said Carbonaro, of Stonegate Wealth Management in Florida. "It is a cyclical thing."

Burnett writes for the Orlando Sentinel.