Gold for Investment Portfolios?

Bloomberg today reports that Gold gained in London as investors sought to diversify their portfolios and get higher returns.

Investors are buying gold because it’s outperforming stocks and bonds. Gold rose 90 percent in the five years to the end of 2005, while the Standard & Poor’s 500 Index returned 2.7 percent with dividends reinvested. An index of Treasuries maturing in two years or more returned about 30 percent including interest reinvested, Merrill Lynch & Co. indexes show.

“There is still some fund money waiting to find a destination in commodities,” Michael Widmer, an analyst with Macquarie Bank Ltd. in London, said in an interview today. “Gold is an anti-cyclical commodity, and the funds want to own it to diversify their portfolios.”

Gold for immediate delivery gained as much as $2.01, or 0.4 percent, to $541.96. It was trading at $540.10 as of 12:44 p.m. in London.

The metal reached $575.35 on Feb. 2, a 25-year high, partly as investors bought the metal as a hedge against inflation amid rising oil prices and increased tension between the international community and Iran over the country’s nuclear program.

The metal on Feb. 7 had its biggest drop in London since 1997 after a decline in the cost of oil eased speculation that inflation will accelerate and erode the value of assets including equities.

Fund investments in commodities will soar almost 50 percent to $120 billion this year, Standard Bank in London said in a report Feb. 2.

In other metals, platinum for immediate delivery fell as much as $21.50, or 2 percent, to $992.50 an ounce, the lowest since Jan. 6. Palladium fell $2, or 0.7 percent, to $277.50 while silver was unchanged at $9.22.

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