Is Gold for Fools? Experts Say Beware the Hot Commodity
%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Malkiel also made the surprising observation that institutional investors fall into the same pattern. Their market timing skills are no better than those of amateur investors.
This information should give you pause about timing your entry into the gold sweepstakes. And there are other reasons to be cautious.
The big selling points for gold and other commodities is that they offer excess returns, increase diversification and are a great hedge against inflation. Sounds good. Unfortunately, the reality contradicts the hype.
A comprehensive study (still behind a subscriber wall) published in 2004 titled Commodity Futures in Portfolios by Truman A. Clark, former professor of finance at the University of Southern California, concluded:
1. The addition of commodities to a portfolio did not provide returns in excess of the Treasury bill return;
2. The addition of commodities to a portfolio did not improve diversification for stock and bond portfolios; and
3. "Commodity futures do not appear to be effective inflation hedges for stock and bond portfolios."
Clark concluded: "The evidence indicates that the purported benefits of commodity futures are exaggerated."
At a recent conference, Vanguard Group founder John Bogle set forth his views on this subject with typical candor: "I for one, have no conviction that commodities belong in anybody's portfolio, at any time, under any circumstances. Did I make that clear?"
I am not suggesting that you can't make money speculating in gold or other commodities. You can do so by buying low and selling high. If that's your plan, remember there's no evidence that anyone has market-timing skill (Glenn Beck included).
If you want to gamble in commodities, and understand the risks, go ahead. However, if you decide to do so, remember that "fool's gold" can refer to the speculator as well as the commodity.