- Should you sell your gold?

When gold breaks through the $1,000 an ounce barrier, you have to start questioning the logic of piling in at what must be the top (or at least close to the top) of the market.

After breaking through the $1,000 mark in September the price still remains at $1,048 today. Historically gold does not move far beyond the $1,000 level without a correction shortly afterwards – for instance after the Bear Stearns collapse in March of 2008, gold shot a little past $1000 but sold off. Then, in July 2008, came the prospect of default on Fannie Mae and Freddie Mac. Gold raced up to around the $970 but sold-off as soon as the US government stepped in.

Now confidence is building and equities are up at levels few expected, forecasts for economic growth are being revised up, earnings are surprising on the upside, corporate activity is picking up – yet despite all these positive noises gold (seen as a defensive play) remains highly priced.

It would seem that the key momentum for gold investors is as a hedge on a weakening dollar so it is more a speculative bet on the dollar and an inflation hedge than a pure supply/demand equation.

Whatever the reason for such activity in gold, stockbroker Mark Allen at Simple Investments is advising clients to steer clear of what he sees as an over-heated market.

“We think gold is up to its top level so it is a market to avoid right now. Is it an inflation hedge? We say no, the best way to fight inflation is via the stock market. Trading in gold has really heated up but how much more can clients make? Our view is very little.”

Commodities can be a very lucrative investment but equally volatile which is why IFA Neil Mumford of Milestone Wealth Management believes the safest exposure for investors is via a collective fund that invests in a whole host of companies in different sectors – for instance gold producers alongside, coal mining stocks, copper producers, oil and gas companies etc.

“With a collective fund you are not solely dependent on the price of just one commodity or the performance of just one company, you have far greater diversity. It is a question of understanding the levels of risk you are willing to take, investors may want exposure to commodities but are not interested in trading every day or taking short term bets on price movements.”

For those more inclined to invest in commodities via a diversified collective fund, the, First State Global Resources, Investec Global Energy and JPM Natural Resources funds have all produced solid returns over three years.

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