The precious metal has rarely glittered as brilliantly as it did last Thursday, when prices shot to US$768 an ounce - their highest level since 1980. Let's look at reasons to invest in gold and how to go about it.
IF SOME gold pundits are right, the precious metal is on its way to a dazzling US$1,000 (S$1,463) an ounce - a price never seen before.
To put that in perspective, the price of gold was just US$254 an ounce back in 1999, a 20-year low.
So why these wild fluctuations in price?
Gold is a 'safe haven' that investors turn to when the going gets rough in other investments such as shares and bonds, or when economic uncertainty abounds.
Since that low point in 1999, investors have been weighed down by worries over inflation and a weak US dollar - another widely used store of value.
Meanwhile, investment fund managers have been snapping up assets such as gold whose values are not tied to stocks and bonds.
Industry experts remain bullish on gold.
They believe that low interest rates, tight gold supply and high oil prices will help to push the gold price past the US$1,000 mark.
Why invest in gold?
GOLD has been popular for centuries as a way to guard against poverty, political instability and other upheavals.
Savvy investors now buy gold mainly as a hedge against a weaker greenback, volatile stock markets, spiralling oil prices and inflation.
Safe haven
In times of uncertainty, investors flock to gold to protect their savings. For example, if the US dollar is weaker, investors buy gold. This pushes the price of the metal higher.
The reason is that, as the US dollar falls, commodities priced in the currency, such as gold, become cheaper to buy in other currencies. This stimulates buying.
Investors also go for gold in bigger numbers when oil prices soar because oil-producing countries that earn revenue in the greenback need to hedge against the risk of a falling US dollar.
Investing in gold is one way to do this, said Mr Vasu Menon, OCBC Bank's vice-president for group wealth management.
Rarity factor
Governments can print as much currency as they like - to pay off their debts - but they cannot create gold, which is limited in supply.
Diversification advantage
Historical data shows that gold prices move in the opposite direction from stock prices, as a general rule. Gold typically soars when stocks tank. For instance, gold prices shot up from 1971 until mid-1973 as stocks struggled.
Still, gold is not always a glittering investment - it has its ups and downs too. After rising to new highs in 1974, gold prices dived, falling to about US$100 in mid-1976 from about US$200 at the start of 1975. They soared to US$850 in January 1980.
Outlook for gold
FINANCIAL experts continue to be bullish on gold, although investors are warned to expect significant price volatility.
Independent wealth management firm Providend said it decided in March to include an allocation to gold in all its portfolios, to provide more diversification for its clients.
At Citibank Singapore, head of investments Salman Haider said its analysts expect 'gold's multi-year bull market to continue'.
He said Citibank was maintaining its forecast at US$750 an ounce on average for next year, and raising the forecast to US$800 for 2009 and US$820 for 2010.
He also noted that the price was likely to be tested at a level of US$850 to US$1,000.
He added: 'Corrections, possibly in early 2008, should be treated as opportunities.'
Still, if you follow the basic rules of investing, you should not put all your eggs in one basket, even if those eggs are golden.
Mr Haider said that, in a balanced investment portfolio, allocations to gold, single country or sector funds should not exceed 10 per cent, although aggressive investors might nudge that up to 30 per cent.
IPP's Mr Lam believes commodities such as gold are 'clearly on a long-term uptrend''. He said most Asian central banks look set to lift their gold reserves.
For example, China has US$1.33 trillion (S$1.94 trillion) in reserves and every extra allocation of 1 per cent to gold represents demand of US$13.3 billion, he said.
'For that reason, we are bullish on gold,' he added.
He suggested apportioning a 'very small' slice of your portfolio to gold, perhaps 5 to 10 per cent.
A UOB spokesman advised Singapore investors to factor in the foreign exchange risk when buying gold.
He said Singaporeans should not invest in gold if they think the greenback's weakness is the main reason for the hike in gold prices.
He noted that, in recent weeks, the US dollar gold price has risen several times, but the Singdollar gold price has fallen.
'This is because the Singdollar also went up against the US dollar during the same period, sometimes at a faster pace than the gold prices.'
