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Should I go to gold?
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October 22, 2001: 11:45 a.m. ET
I'm thinking of moving $10,000 into gold. Is that a wise move?
MONEY columnist Walter Updegrave
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NEW YORK (CNNmoney) - I'm thinking of moving $10,000 of the $15,000 I have in my retirement account into gold. Do you think that would be a wise move?
Hey, that would have been a great move a year ago. After all, gold mutual funds have earned an average of nearly 25 percent over the 12 months through the first week in October. But do I think you should make such a move now? The answer is a loud, unequivocal NO!
For one thing, I don't think much of gold stocks or funds as a long-term investment. Yes, they have their occasional spurts. Aside from their recent surge, gold funds gained 81 percent in 1993.
Problem is, these sporadic jumps don't make up for the long periods when gold funds perform abysmally. Over the ten years to October 1, for example, gold funds lost nearly 7 percent a year on average, which means $10,000 invested 10 years ago would be worth less than $5,000 today.
Now, if you believe you can see in advance when gold funds are about to shine and when they're about to lose their luster...well, then I guess you could make a good case for trading them for the short-term. But if you look at when money begins moving into gold funds, the biggest flows come after the big returns, not before, which suggests to me that most investors aren't prescient enough to buy these funds before they take off. (The fact that you've written to ask about buying gold rather than to brag about having made a killing in it tells me your predictive abilities aren't so hot either.) So, for me at least, this means that buying and holding gold funds doesn't make much sense, and neither does trading it.
That said, you can make a small case for holding gold as an inflation hedge and it's also true that gold can dampen the overall volatility of your portfolio because its ups and downs don't always correspond to the zigs and zags of the market -- that is, gold has what investment pros call a "low correlation" to stocks. But, as I said, this is a small case. I don't find it compelling enough to lead me to put any money in gold funds, but I suppose a reasonable person could justify holding 5 percent, perhaps 10 percent, of one's portfolio in gold, but certainly nothing on the order of two-thirds of one's assets. 
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