Gold is STILL a buy

According to this expert, the recent selling of gold was a result of the panic from hedge funds needing to raise money. Gold still makes sense for many investors as a hedge against global market uncertainties and fears in the market.

By Michael Yoshikami
Sept. 30, 2011, 10:06 a.m. EDT
Market Watch

Gold has dropped in price to around $1,600 per ounce and suddenly some say that gold is no longer a commodity that investors should embrace. I say ridiculous.

In times of panic, investors sell everything, even assets that have medium to long-term growth opportunities. The recent selling of gold was related to panic from hedge funds needing to raise money for redemptions as well as a tightening of margin requirements. This was not selling pressure based on any fundamental change in conditions or outlook.

Gold still makes sense in investors' portfolios as a hedge against the fear and stagnation that very likely will occur over the next several years in the global economy. Affluence in China and India will continue to drive consumption, and despite the economic travails throughout the world, the desire for gold jewelry will continue to rise.

Emerging markets that have long held their currency reserves in U.S. dollars and euros will continue to lose faith in the wisdom of politicians in more established economies. Emerging economies will replace these currency reserves with tangible assets they gold.

I am not advocating a portfolio strategy entirely invested in gold; a balanced view matters. Gold should be an important part of an overall allocation strategy. This tangible asset still makes sense as a hedge against headline risk and provides the opportunity to participate in fundamental developing demand issues for this precious metal.

Let others panic. As Warren Buffett says: "Buy when investors are afraid." The gold correction is an opportunity. It's our view that sometime in the not-too-distant future, gold will reach $2,000 an ounce. When that happens, those that pronounced that the wisdom of investing in gold was over will likely rue their panicked calls to sell all.

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