Jakarta, CNBC Indonesia – Gold is a popular investment instrument among the public. According to investment experts, gold plays a “different” role in a portfolio when compared to stocks or bonds.

Launching from CNBC Make Itgold is a great way to diversify for some investors because it tends to move “in a different direction” than traditional investments.

Even though the price is at an all-time high, gold is still widely watched by market observers. Although the current economic scenario is considered good for stocks, global chief investment strategist at Ned Davis Research, Tim Hayes said that gold is more so bullish.

However, the report advises that you should not make gold the “cornerstone” of an investment portfolio. In fact, investor, billionaire and CEO of Berkshire Hathaway, Warren Buffett, is said to avoid gold for a reason.

Photo: Antam Precious Metals. (CNBC Indonesia/Tri Susilo)

The reason why the world's most famous long-term investors do not rely on gold as a primary investment is because gold is considered an asset that does not produce anything even if it is stored in a brokerage account or in a safe.

In his letter to shareholders in 2011, Buffett stated that at the cost of all the world's gold, an investor could buy all the agricultural land in the United States (US) with enough money left over to buy ExxonMobil 16 times over.

“Come back a century later and one of these options will produce abundant harvests and large profits. The other is still large amounts of gold,” wrote Buffet, quoted Tuesday (2/4/2024).

Why Can Gold Prices Continue to Rise?

Different investors cite reasons for owning gold. First, gold has a reputation for maintaining or increasing its value during periods of inflation, despite its poor track record.

However, on the other hand, gold is considered a store of value if paper money experiences significant devaluation. It is also generally expected to persist in the so-called “risk off“, namely when investors tend to “flight” from riskier assets, such as shares, to assets that are considered “safe haven“, including gold and bonds.

This suggests that investors tend to take more gold ahead of and during a recession as well as the market bearish.

According to one of the portfolio managers at the Fidelity Strategic Real Return Fund, Ford O'Neill, this makes gold's recent uptrend a little strange.

“This is absolutely not it [risiko di luar pasar] since October last year,” O'Neill said.

“I think we are experiencing what I call an 'everything rally', which is when some assets are already performing quite well,” he added.

According to O'Neill, basically gold performed well because investors raised the prices of almost everything, from stocks to bonds to cryptocurrencies.

Meanwhile, according to Hayes, apart from rising gold prices, the weakening US dollar and falling bond interest rates have pushed up gold prices recently.

At lower interest rates, bonds and cash accounts “have a smaller competitive advantage” over gold,” Hayes said.

The outlook for gold is said to be getting brighter as the Federal Reserve projects to start cutting interest rates this year. The lower the interest rate, the lower the opportunity cost for investors to hold gold.

“We continue to act bullish against gold,” said Hayes.

Want to invest in gold? Pay Attention to This

If you want to buy gold as an additional investment portfolio, make sure you buy a gold ETF that tracks the price of the yellow item.

By doing this, you can track the performance of gold relative to the rest of your portfolio and avoid having to spend a lot of money to own physical gold.

Over the past 15 years, an ETF that tracks the spot price of gold has generated an annual gain of 5.5 percent compared with the S&P 500's 15.3 percent gain.

Regarding inflation, gold price records are mixed. Even though inflation has been stable since 1988, gold has produced negative returns in 18 calendar years, including 2021 and 2022, aka periods with very high inflation.

It is claimed that some investors like to hold gold allocations in small amounts because it provides peace of mind when other assets experience a decline.

“When things are going down, gold is the one thing that is likely to do well,” said William Bernstein, author of “The Four Pillars of Investing.”

“Home insurance also has high profits when a fire occurs,” he added.

But in the long run, you are better off owning assets that will “grow” and provide returns at a compound interest rate.

“It is true that gold has some industrial and decorative uses. However, demand for these purposes is limited and unable to absorb new production,” Buffett wrote in 2011.

“Meanwhile, if you own an ounce of gold forever, you will still own an ounce of gold in the end,” he continued.

[Gambas:Video CNBC]

(rns/rns)