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Gold: What Can Trigger the Inevitable?

A stronger dollar or rising interest rates could derail the epic yellow metal mania

 

Before you sell that last piece of jewellery, keep in mind that the gold price will not go up indefinitely. There are number of reasons why it might crash.
If you're over weighted in gold or commodities, the warning is the same: A stronger dollar, strengthening US economy or rising interest rates could derail the epic yellow metal mania. Who knows? Congress could even reach an agreement to clear up its balance sheet and pay down its debt.


What are the chances of any of this happening? It's beyond the limits of my minuscule, clouded crystal ball, which is about the size of a pin-head.

 

Nevertheless, you should prepare your portfolio for any number of eventualities, which can be easily accomplished with exchange-traded funds. Gold is troublesome in my book because it really isn't an investment. It's a reserve currency of sorts that's heavily traded by institutional investors. It doesn't pay any dividends or interest and is bought in times of widespread fear.


The savviest traders buy gold as a hedge against the dollar. In the past few years, it's also been a bulwark against the Euro as well, which has been bruised by sovereign debt woes in Greece, Ireland and Portugal. Is the Euro financial fizzle over? I don't think so, but it's still not a reason to load up on gold. The clearest threat to gold's reign as the reserve currency of nervous Nellies is a possible rebound of the dollar. In a speculative portfolio, you can go long on worldwide stocks through a fund like the Vanguard Total World Stock Index ETF, own gold through the SPDR fund and go either way on the dollar.


Stick to your long-term goals. Only professional traders who have the discipline to make quick trades will get out and make a profit. If you try to time or short any vehicle, you'll be stuck holding the bag. If you need income, forget about the rest of the world and find the safest investments at the lowest possible cost. Your second goal would be to protect yourself against loss of purchasing power
Before you pawn your wedding ring, keep in mind that in real times of crisis the metal won't replace food or water. As Voltaire reminded us in 'Candide', it would be better to tend to our gardens.

 

— John F Wasik/Reuters

 
 

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9) IDFC Mutual Funds:

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