Glittering opportunity
If you're going to invest in anything, make sure you understand it thoroughly and better than anyone else, says investment guru Jim Rogers. It's something to ponder as one prepares for retirement.
The 68-year-old billionaire investor, and creator of the Rogers International Commodities Index, is bullish on commodities, as evidenced by the title of his 2005 book: Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market, and a report he co-authored with Yale professor K. Geert Rouwenhorst called 'Facts and Fantasies about Commodity Futures'.
The bow-tied globetrotter believes commodities are one of the best investments a person can make over time. It's a position at odds with typical investment thinking which centres on stocks, bonds and foreign exchange trading. One commodity that millions of investors in India and China swear by is gold. Since April 2001, its price has more than tripled in value against the greenback, with the fears of an uncertain world after September 11, 2001, and declining yields on mines exacerbating supply and raising prices.
Gold has been a medium of exchange for millennia, most typically in the form of bars, coins or instruments convertible into gold. The only nation adhering to some semblance of a 'gold standard' is Switzerland, with about 40 per cent of the Swiss National Bank's reserves held in gold, according to the International Monetary Fund.
With demand for gold rising, the World Gold Council estimates total global supplies to be 3,859 tonnes, with demand at 3,754 tonnes. Individual gold owners opt for bullion coins or bars for investment and as an inflationary hedge. Popular coins for collectors and investors are the South African Krugerrand, Canadian Gold Maple Leaf, the Australian Gold Nugget and the American Gold Eagle.
Global pension fund assets were estimated at US$25.9 trillion as of late last year. Most pension funds in the world invest in equities and bonds, with small allocations for property, cash or commodities. With the tumult of global capital markets and the fact that every fiat currency in history has failed, stemming from concerns over the long-term viability of the United States dollar, there has been greater interest in assets for managing risk, such as gold.
The financial world is steadily realising the need for alternative assets, such as precious metals, and other commodities. Gold is useful for capital preservation because holding it spreads risk and diversifies one's portfolio. Pension funds that are heavily or solely invested in gold have arisen in the US and Britain for retirees to safeguard assets during their golden years. Such funds use data and country specific analysis to maximise returns. It is worth noting that gold is still a commodity and subject to the same fluctuations as any asset traded on global markets.
Most experts suggest a gold allocation of 15 per cent to 30 per cent because at its best, gold is a hedge against sharp market changes. Gains from gold holdings can help offset losses from holding more paper-based assets, or vice versa.
