Gold Loses Its Value as Selloff Protection
08/28/07 - 11:43 AM EDT
There's been a lot of ink spilled in the last few years (and I have contributed some of that ink) about how investors can use commodities to diversify their stock portfolios because there's a low correlation between the two asset classes.
The easiest and most obvious commodity to capture this effect is gold, but lately I have been starting to wonder if gold has a tighter correlation to stocks than it used to because it has become so popular. Author Nassim Teleb had a great comment on the Wealth Track program a few weeks ago when he said that diversification used to work when no one knew about diversification. A lot of people know about gold -- maybe too many people -- and that may be why it has not offered much protection during the last three biggish stock market dips. During the selloff that started in May of 2006, the S&P 500 dropped roughly 5% in a month. Gold, as measured by the StreetTRACKs Gold Trust (GLD Quote - Cramer on GLD - Stock Picks), fell 17% over the same period. Again in the first quarter of this year, when the S&P 500 fell 5%, GLD dropped 7.5%.| Where does gold fit into your portfolio? Answer Here |
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