Investing in Gold, What You Should Know

Lisa Detanna, Managing Director, Senior Vice President, Investments, the Global Wealth Solutions Group of Raymond James and the Handler Investment Consulting Group of Raymond James discusses gold as an investment.

Lisa Detanna, Managing Director, Senior Vice President, Investments, the Global Wealth Solutions Group of Raymond James (Photo: Business Wire)

Current economic concerns globally, and continued geopolitical issues have peaked an interest in gold. The violence and issues in the Middle East, Russia and the Ukraine, and a slowing economy in China, have given some investors jitters. Historically, gold has been an alternative when concerns like this arise. Global unrest is one factor that has advanced the price of gold over 9% YTD 2014 and up 3% for the 2nd quarter. On August 31, 2014 gold closed at $1,285 an ounce.

Spot prices, or actual gold prices peaked to almost $1,900 an ounce in August of 2011 and then dropped to $1,200 from 2011 to 2013 and now over the last 6 months we have seen rising prices.

In the US we are starting to see signs of inflation beginning to creep into the economic data, which has been a historical rationale to add gold into an asset allocation. For the past few years the Federal Reserve has pumped a lot of stimulus into the system and now the bond buying program is slowing with an end in sight. When gold prices fell dramatically people were looking for inflation in our economy but it didn’t happen until this June when we saw a slight bump in the numbers. We believe the Fed is targeting a 2% inflation rate, but it also indicated that it is in no hurry to raise rates until sometime in 2015, depending on the economic data.

Gold tends to trade within a range, and can react quite dramatically to various macro events while still displaying general seasonality trends, we believe investors that trade and are more aggressive can use this volatility to their advantage – adding to positions in higher-quality core names that are temporarily depressed on the back of broader market sell-offs, and lightening up on positions as they outperform, trading near highs. There are a few ways to invest in gold. Buying the gold itself can be cumbersome and difficult to store. Investors can buy stocks that mine gold, or have exposure to gold by utilizing other diversified investment vehicles.

Gold stocks are a way to invest in the gold mining companies. If you do not wish to buy gold directly you can buy the underlying companies that mine gold. Some gold stocks pay dividends which mean you get income from these investments. When you sell the stock you will have a (short or long depending on your time held in the investment) capital gain or loss, depending upon whether the stock price rises or falls and your tax bracket. The miners (gold stocks) fell dramatically when they expanded when gold was at its high and assumptions for expansion were made at those high prices. When the growth in the companies did not occur the companies took a beating. Miners had to cut capacity, cut expenses and shut down unproductive and unprofitable mines and the higher quality names with lower price of production is where our team would focus on to reduce risk. Investors will continue to place a growing emphasis on those companies and management teams best positioned to achieve solid, steady predictable operations, with profitable growth. For a list of our recommendations please go to the Raymond James corporate research website.

Our team, the Global Wealth Solutions Group of Raymond James and The Handler Investment Consulting Group of Raymond James recommends that investors use a diversified approach that is unbiased, with open architecture construction and professional management at reasonable costs. Currently, depending upon the client risk tolerance and investments objectives, we do have an allocation to this alternative space. For investors that want exposure to commodities, or natural resources, rather than purchasing the commodities or gold itself; our team looks for investments that have a diversified approach to this sector and can be interchanged as needed with the economy’s ebbs and flows.

Disclosures:

Views expressed are the current option of the author, but not necessarily those of Raymond James & Associates. The author’s opinions are subject to change without notice.

The price of gold has been subject to dramatic price movements over short periods of time and may be affected by elements such as currency devaluations or revaluations, economic conditions within an individual country, trade imbalances, or trade or currency restrictions between countries. As a result, the market prices of securities of companies mining or processing gold may also be affected.

Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have potential for instability; and the market is unregulated.

International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Diversification and strategic asset allocation do not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal. The process of rebalancing may carry tax consequences. No investment strategy can guarantee success.

Dividends are not guaranteed and must be authorized by the company's board of directors. Statements of forecast are for informational purposes only and are not guaranteed to occur.

Information provided is intended to be general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters. Please consult a qualified professional to discuss these matters. Raymond James & Associates, Inc. member New York Stock Exchange/SIPC.

Contact Lisa Detanna at 310.285.4506 for further information. The Global Wealth Solutions Group of Beverly Hills is located at 9595 Wilshire Blvd., Suite 300, Beverly Hills, CA 90210

About Raymond James Financial, Inc.

Raymond James Financial, Inc. (NYSE: RJF) is a leading diversified financial services company providing private client group, capital markets, asset management, banking, and other services to individuals, corporations, and municipalities. Its three principal wholly owned broker-dealers, Raymond James & Associates, Raymond James Financial Services, and Raymond James Ltd., have approximately 6,200 financial advisors serving in excess of 2.5 million client accounts in approximately 2,500 locations throughout the United States, Canada and overseas. Total client assets are approximately $473 billion. Public since 1983, the firm has been listed on the New York Stock Exchange since 1986 under the symbol RJF. Additional information is available at www.raymondjames.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/multimedia/home/20140908005360/en/