'Jury is still out' on the precious metal, an expert said today.
Ultra-cautious investors must avoid becoming over-exposed to the precious metal, analysis released today by Bloomsbury Financial Planning showed.
Advice from the financial firm counsels against putting "all your eggs in one basket" by transferring all holdings into gold. This is despite the metal offering a "safe haven" from turbulent financial markets as well as a useful hedge against runaway inflation.
Gold's principal attraction for investors is that it holds value in times of crisis - in contrast to stocks and bonds. The turmoil caused by the credit crunch and sharp economic downturn has therefore led to a 38 per cent year-on-year demand for the metal among investors, according to a recent World Gold Council study.
Popular ways of investing include exchange-traded funds, coins and even gold bars - which are commonly kept safe by financial firms in exchange for a fee.
Demand has also been stoked by the recent quantitative easing programmes embarked on by central banks - including the £125 billion Bank of England scheme - with the aim of boosting lending flows in the credit crunch-hit economy. The programmes, essentially equivalent to printing money, have the capacity to send inflation rates skyrocketing.
This would decimate the value of cash savings built up over previous years - but people with holdings in gold would sidestep this risk due to the metal's intrinsic value
Jason Butler, a chartered financial planner at Bloomsbury Financial Planning, said: "Gold is obviously proving popular because in times of uncertainty people like to have something physical. However, the problem with gold is that, while it is a 'storer' of value, it doesn't have any return value other than its speculative supply and demand value."
He added: "It is quite rational for people to turn to something that they can touch and that has been around for thousands of years, but the jury is out on whether you would want to put all your eggs in one basket with gold."
