Gold ETFs are down nearly 20% this year. However, the poor performance shouldn’t discourage investors from maintaining a small percentage to the metal in their long-term portfolios for diversification, an inflation hedge and disaster insurance, some experts say.
Todd Rosenbluth, senior director of ETF research for S&P Capital IQ, thinks removing an allocation to gold from a diversified investment portfolio after this year’s price pullback might be shortsighted.
“Gold is a way to hedge your portfolio against inflation, and a way to add some diversification to your portfolio so you’re not only in equities or fixed income,” Rosenbluth said in a report this week.
He pointed out that SPDR Gold Shares (GLD), the largest precious metal ETF, has exhibited a very low correlation with the S&P 500 over the past three years. Other bullion-backed ETFs include iShares Gold Trust (IAU) and ETFS Physical Swiss Gold Shares (SGOL).
Gold prices have fallen below $1,400 as the U.S. economy slowly improves and on speculation the Federal Reserve may soon begin scaling back its bond purchases. [Cashed-Out Gold ETF Investors Face Higher Tax Bill]
In the first four months of 2013, investors pulled $14.8 billion out of gold based exchange traded products, with more than half that amount occurring in April alone, according to S&P. [Lydon: Gold ETFs Shed 300 Tons of Bullion This Year]
“Gold prices have come down, due to increasing U.S. economic confidence, lowering gold’s role as a safe haven, and concerns about potential gold sales in Europe to help lower government debts,” said Johnson Imode, the S&P Capital IQ metals and mining equity analyst. “We do still expect gold prices to remain historically high though, as recent IMF global growth cuts show that economic uncertainty remains.”
SPDR Gold Shares
Full disclosure: Tom Lydon’s clients own GLD.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.