Investors should have some gold in their portfolio, according to a recent research report from Trinity College. The report found that buying gold is a good hedge against declines. That’s because gold prices increase dramatically after a stock market crash, but only for about 15 days. After that, gold prices tend to lose relative value against stocks, which often rise again shortly after a crash.
This research showed that gold prices increased from 1999 through 2006, while the stock market declined from 2000 to 2003. Gold prices spiked when the stock market crashed, as scared investors panicked, sold their stocks and bought gold. However, when panic was over, the money moved back into stocks, and gold was no longer a better investment.
For similar reasons, gold also tends to gain in value as the value of the dollar declines. Many investors also buy gold as a hedge against inflation.
Gold should not be bought alone as an investment. Gold itself is speculative, and can have high peaks and low valleys. That makes it too risky for the average individual investor. Furthermore, despite the peaks and valleys, over the long run the value of gold doesn’t beat inflation. Instead, gold should only be part of a diversified portfolio which includes other commodities such as oil, mining and investments in other hard assets.
Article Source: Kimberly Amadeo – www.about.com