Is it a good idea to invest in gold right now?

How do you feel about the US dollar? Gold is generally considered to be an inflation hedge - inflation erodes the value of the dollar. The current environment is not considered inflationary but other factors may make a gold a good option for dollar-based investors over the next several years. The key factor is continuing confidence in the dollar. A large portion of foreign countries' foreign exchange reserves are held in dollar denominated assets. If foreign governments were to lose confidence in the US dollar as a store of value they could sell their dollars. If enough governments came to that conclusion the sales coud turn into a dollar route. Recently the government of Dubai announced that it would increase the share of Euros in its foreign reserves to 10% over the next year from 2% currently. The dollar position will be reduced to make room for the Euros. Also countries such as India and China have a low single digit percentage of their reserves in gold, compared to an average in the mid-teens for OECD countries. Were they to shift their asset allocation you would have a combination of dollar sales and gold purchases. Finally, if the United States were ever to find itself in a position of difficulty servicing its overseas debt a possible strategy would be to crank up the printing presses and kick off a round of inflation to erode the value of the debt and ease repayment. In such a situation gold would perfrom extremely well. Gold is a good portfolio diversifier and it would be sensible to have 10-15% of your portfolio in gold. If you do decide to invest, gold ETFs are the easiest way to do so as owning physical gold can be problematic for an individual investor. Of course, all of the above comes with the caveat that your personal financial situation could make the comments irrelevant for you. Finally, I can't help but argue against the position taken by some that your exposure to gold should be small as nobody knows what will happen to the price of gold. The comment implies that you know what will happen to the prices of all of your other investments, which is plainly incorrect.

Sure, as long as it's a small percentage of your overall portfolio. No one can predict where gold prices will go - just limit your exposure to a small portfolio percent.

Yes, especially since money is going to become obsolete. Jennifer

In the recent credit crunch, gold doesn't seem to have acted as the monetary safe haven it traditionally is. However, considering that the Federal Reserve may be forced to cut interest rates, inflationary pressures may cause gold to start moving.

If you don't feel comfortable purchasing actual bullion or diving into the fast-moving and risky commodity futures market, you could look to trade gold by proxy, either through exchange-traded funds and indexes that track gold, such the XAU, HUI, and GLD; or through the stocks of gold-mining companies such as FCX and RIO. Please understand these are not specific investment recommendations, and you should perform your due diligence of stock analysis and risk management before putting any money on the table.

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