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Investors cautioned about allocations to gold

SMSF trustees should be careful not to get caught up with the emotional aspects associated with physical gold and to limit any allocation to two per cent or less, an adviser has warned.

 

Henderson Maxwell Private general manager and senior financial adviser Tony Davison said given the fact gold produces no income and tends to have a volatile price; it should be regarded as a speculative asset rather than purely an investment asset.

Part of the reason for its price volatility is due to the fact that the asset class has no link to the economy and is driven almost entirely by supply and demand, he said.

“It has very little industrial use so it’s really only for jewellery and that sort of thing, so it’s not linked to the global economy,” he explained.

Assets that are speculative should be limited in terms of their allocation, he said, noting that “any speculative asset should be below two per cent of the total fund".

Mr Davison added that it may be better for trustees to invest in a gold ETF, if they are going to invest in the asset class, or purchase shares in a gold mine company to get exposure.

SMSF trustees are less likely to get “wrapped up in the emotional aspects of the gold market” that way, he said.

“We would probably err towards exchange-traded funds, where SMSF trustees can generally find liquidity, and they can generally get their money out when they want it,” said Mr Davison.

“Trustees might also be better off buying shares in a listed gold mine company. These companies are in the business of producing a commodity at a margin so my point would be that while you get the gold exposure from those companies, you also get the benefit of someone producing at a margin.”

Investors cautioned about allocations to gold
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