Gold has long been considered a hedge against a loss in the purchasing power of paper currencies. But no one can ever call it a comforting or predictable hedge.
While gold prices ended 2008 just a bit higher than they began it, investors were taken on a thrill ride. After climbing above $1,000 an ounce in March, gold began a descent and ended the year at $884.30.
Despite the swoon of stocks and gold alike from their highs last year, gold typically performs so differently from stocks that a small dose of gold is increasingly being included in mainstream portfolios. Gold generally also moves in the opposite direction of the dollar.
''I own a small amount, an insurance policy's worth, of gold, some in gold coins but most in exchange-traded funds,'' said Dennis Gartman, publisher of the Gartman Letter trading commentary in Suffolk, Va. ''I keep the physical gold in a lockbox, just in case, but I hope I lose money on it because that would mean all my other investments are doing better.''
Besides gold coins or bullion, the more accessible vehicles for gold investment are mutual funds or exchange-traded funds.
The SPDR Gold Trust, an ETF that invests directly in the underlying commodity rather than in gold-mining stocks, issues shares that are each equal in value to one-tenth of an ounce of gold. Launched in 2004, it gained 5 percent last year, 30 percent in 2007, 23 percent in 2006 and 18 percent in 2005.
''With the exception of the 30-year Treasury bond, gold has held up better than other asset classes and has been in a general upward trend since 2001,'' said Leo Larkin, precious metals and mining analyst with Standard & Poor's Corp. in New York, who considers keeping 5 percent to 15 percent of an individual's portfolio in gold to be reasonable. Larkin said a multiyear bull market in gold is still under way and has several years to go. He and Gartman expect gold prices to exceed $1,000 an ounce in 2009, and both recommend the SPDR Gold Trust.
''Even though gold prices were relatively flat last year when you compare the beginning of the year to the end, an investor was better off holding gold'' than the stocks of the Dow Jones industrial average, said Mike Mapa, editor of InsideMetals.com in Reno, Nev. ''By the end of the first quarter of 2009, gold will test $950 an ounce, and I wouldn't be surprised if it reached $1,200 by year-end, which would tell me the economy still has problems.''
Mapa said major mining companies should do well in 2009 thanks to consolidation within the industry. The biggest will be able to snap up quality small and midsize mining companies that have been unable to obtain financing.
Jeffrey Christian, managing director of CPM Group in New York, predicts gold will be around $850 an ounce at year-end, though he expects it will hit a new high along the way. He expects the recession should be ending by then, so stocks and bonds will look more attractive, interest rates might start rising, and the case for gold will be less compelling.
Individual gold-mining stocks have had a rough time. Mutual funds that invest primarily in those stocks declined 33 percent last year, according to Lipper Inc., though their five-year annualized return is nearly 7 percent.
Among bargain-priced individual stocks, experts said three Canadian companies stand out:
Barrick Gold Corp., the world's largest gold producer, with mines and projects in North and South America, Africa and the Pacific region, is recommended by Christian, Gartman and Mapa. Its geographic diversity alleviates political or production risk from any one region. It is also financially strong, with significant cash flow. The stock declined 13 percent in 2008 after a gain of 37 percent in 2007
Newmont Mining, the world's No. 2 gold producer, is recommended by Gartman and Mapa. It purchased well-known Battle Mountain Gold in 2001 and two additional mining firms in 2002. It has a solid balance sheet and strong cash flow. The stock fell 17 percent last year, following an 8 percent gain in 2007.
Yamana Gold Inc. is recommended by Larkin and Mapa in part because its price is cheap. This producer, with seven operating mines and five development projects mostly in South America, has aggressively boosted production and acquired the Meridian Gold firm. Its stock declined 40 percent last year and 2 percent in 2007.
