Gold is back in fashion. After taking a breather in March, the precious metal has been on a steady climb as the overall demand for commodities has seen a resurgence and investors have begun to flee the safety of the dollar in search of higher returns.
Market turmoil and stronger gold prices caused the stocks of gold mining companies to climb sharply on Friday. The S&P 500 ETF (SPY) hit a new 52-week low on Friday before bouncing back late in the day to finish up 5% on the day.
ETF investors have several choices for gaining exposure to gold including funds that hold physical gold, invest in futures contracts or own gold mining stocks. Leveraged and inverse funds are also available.
Max and Erma are well on their towards saving for retirement with a well-diversified portfolio. Although they have taken a hit in the recent bear market, they still have a substantial nest egg and want to protect their investments against any inflation threats that may arise from the massive monetary and fiscal stimulus actions taken by the U.S. and other large economies.
Bob is interested in adding gold to his portfolio after reading the results of a joint study by the World Gold Council and New Frontier Advisors. The study found that the appropriate allocation to gold is dependent on the portfolio risk level, recommending a 1-2% allocation for low risk portfolios and 2-4% in a balanced risk portfolio.