However, retail players, including those with self managed super funds, should be careful about buying gold at elevated prices.
ETFs are listed on the Australian Securities Exchange and their units are bought and sold like shares. The unit price tracks a gold index, as measured in either Australian or US dollars.
As gold has risen, the unit prices of Australian-listed gold tracking ETFs have been doing well, as have the share prices of listed gold miners and explorers.
One of those ETF’s, called GOLD, which tracks the gold price in Austraian dollars, will soon reach $1 billion in funds-under-management following strong inflows in recent weeks. The unit price of the ETF has risen about 40 per cent over the past year.
Who knows if the gold price has further to run but, with such a huge increase, you would have to think that it can’t continue for much longer. Gold attracts more speculators than most other types of markets, which adds to volatility.
Gold can be a useful to help diversify an investment portfolio but there are some features that are likely to continue to make it no more than a bit player.
Unlike many of our big listed companies that pay dividends that are fully franked, gold investments pay no income. The cash dividend of the whole of the sharemarket, on average, is more than 4 per cent and even when the share prices of the companies go down, shareholders continue to receive income.
Over the longer term, a well-diversified portfolio of shares is likely to outperform gold but the yellow metal can offer some downside protection to the portfolio.