Douglas Charney is vice president of investments with Wachovia Securities. He's a pretty smart guy and recently issued a rather fascinating paper on gold, especially if a financial planner is interested in having such items added to a client's portfolio.For one thing, Charney says that gold has special characteristics that set it apart from other commodities. One is that gold has been used in trade as money because it was scarce, transportable, nonperishable, divisible, and easily sold. Gold has also been used to store wealth in areas of economic or political instability and many people kept bags of gold dust or coins hidden in doorjambs or under the floors of their homes. Some even resorted to gold teeth to keep the precious metal with them at all times.
Gold sometimes, as Charney points, out, has a negative connotation, strange as that seems. History certainly shows that when a country is on the verge of war, the value of gold increases. In fact, most investors will tell you that even if the value of the dollar drops to zero, gold will still have value. Ask my wife. She believes in jewelry, kind of a portable wealth. After all, you can always sell it if things get tough.
For those interested in investing in precious metals, you have various roads to travel. You can buy gold bullions or coins issued by certain governments and as a result, you will have pieces of gold sitting in your home or at the bank's safety deposit box. Moreover, you can invest in gold mining companies or buy stock or mutual funds in such companies. Those investments usually pay dividends, which is always nice. You can even invest in certain precious metals portfolios, which are similar to mutual funds. These investments also pay dividends plus you get the equity of the companies that produce the gold.
Charney is quite careful here about touting gold or any other precious metal. He points out that buying such precious metals as a source of diversification should only be considered by investors who are prepared to assume the risks inherent in the bullion market. He cites the fact that "any bullion or coin purchase represents a transaction in a non-income producing commodity and is highly speculative."
I, for one, have an interest in a gold mining company and as I was told from day one, when stocks go down, gold goes up. I've watched this for three years now and that is right on target. Every time the stock market dips, the gold market rises, and vice versa.
But, of course, my wife swears by jewelry. Hmmmm! Does she know something I don't?
