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Rekenthaler Report

Gold Shares or Bullion as Portfolio Diversifiers?

The answer depends upon the size of the investment.

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Following Up
Tuesday's column about using long bonds and gold to diversify conventional portfolios shortchanged the metal. As several readers pointed out, the article assessed the effect of holding the stocks of gold miners, but not of investing in bullion itself. In addition, I evaluated a portfolio that used atypically long bonds. Best to run a controlled study that changes only a single factor, not two.

That's what we'll do today. First, we will compare the historic performance of gold-mining equities to that of bullion. Then we will measure how each asset would have affected a standard balanced fund by replacing half the fund's fixed-income position with either gold shares or bullion. Finally, we'll halve the gold weighing to 10% to see whether that amount is large enough to make a meaningful difference.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.