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In late 2009 the price of gold zoomed past $1,200 an ounce. This was a new record for the yellow metal as investors across the world sought protection from turmoil in financial markets and solace against worries about the inflation. for some investors, this was an expected outcome. Jim Rogers, a legendary fund manager, has made huge bets on gold in recent years based on his belief that the US dollar is overvalued and that the dollar and gold will show an inverse correlation to one another. In other words, he believe that as the dollar weakens, gold must inevitably rise.

Yet that inverse correlation may not be as predictive as mr Rogers and others investing in gold hope. for gold is often viewed as simply another currency. since gold is traded and priced in dollars, it must inevitably rise if the dollar weakens. Yet the same effect could be obtained by holding another currency such as the euro or Japanese yen.

And the difficulty with holding gold as an investment is that the price of the metal has a strong influence on jewellery demand, which accounts for some two-thirds of gold demand. last year some $61 billion was spent on gold jewellery, according to the World Gold Council. In contrast investment accounted for just $32 billion of demand for gold. for investors who are holding gold as a hedge against inflation, the worry is that a rising price is unsustainable if it halts gold jewellery buying and leads to an oversupply of the metal. for now gold has served investors well, but at current high prices they should think carefully before investing in gold or buying gold ETFs.

Jon Rose is the pen name of a financial journalist who has covered business and financial markets for 15 years and has an interest in personalfinance. You can read other articles he has written about buying gold ETFs and investing.

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This entry was posted on Tuesday, July 6th, 2010 at 3:36 pm and is filed under investing in gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Investing in Gold ETFs May Not Make a Portfolio More Robust