Gold not as safe as investors think

Gold is not as safe an investment as many people think, with much of it gains this year offset by a plummeting US dollar, the unit in which the precious metal is priced.

Tuesday, November 10th 2009, 5:42AM 2 Comments

by Paul McBeth

Sandra Mueller-Gisler, senior first Vice President of Rothschild Bank in Switzerland, told financial advisers at Grosvenor Financial Services conference last week that many investors in Europe had piled into gold, both futures contracts and the actual metal, to protect their investments when financial markets soured in the early months of the year. Unfortunately, many did not realise that the commodity was traded in US dollars, and some ultimately lost money on their investment because of this.

"Gold as a safe haven driven by overall uncertainty," Mueller-Gisler said. "There are discussions about putting all or significant amounts of savings into gold, but gold is a relatively small market."

From its strongest point against the euro at US$1.24 in February, the US dollar slumped 21% to $1.49 per euro. Over the same period, gold only gained value 12% to a record high US$1,099.90 per ounce on the New York Mercantile Exchange.

Mueller-Gisler said gold is also problematic to invest in, with the majority of the metal used to manufacture jewellery.

"You'd be surprised to see 70% of gold manufactured is for use in jewellery, and not accessible to investment," she said.

Still, investors should probably have some exposure to the precious metal to help mitigate risks in other volatile markets, and Mueller-Gisler said a portfolio allocation should probably consist of both futures contracts and the actual metal.

Paul is a staff writer for Good Returns based in Wellington.

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Comments from our readers

On 12 November 2009 at 2:48 pm bob jones said:

are you mad...gold will reach 1200 dollars by christmas and surge to 2000 dollars by mid 2010, gold stores value is a hedge against inflation that will rear its head at the end of 2010 because of the massive printing of money.why do you think major governments are purchasing vast amounts ??

On 12 November 2009 at 2:50 pm RobertB said:

Rothschild Bank advising against physical gold (the only kind that matters)? That's a good one.
Also, to advise investors to buy gold futures contracts is insane - you can have your whole 'investment' wiped out in seconds even if you follow the market every minute of every day - and guess who the counterparty might be - why quite possibly the Rothschild Bank or another bullion bank who take great pleasure and profit destroying the small speculator at every opportunity. As a supposed vice-president of a legendary bank, one wonders how she can come out with this nonsense in public.
However, notice she was speaking to financial advisors...i.e.salespeople who hustle paper for the bank. For a commission, they take your money and give you paper!
Also, physical gold is not an 'investment', it is a currency hedge - ask the folks in Zimbabwe for an extreme example.