Market turbulence has been driving many investors to blindly rush to gold, but Franklin Allen and Jeremy Sigel, both Wharton professors at the University of Pennsylvania, have been speaking out about the risks of investing in gold, or even worse, investing based on sentiment. Wide price fluctuations don't make gold a good buy-and-hold for the long term, Allen said.
Sigel added that gold prices tend to ride waves of investor emotion. "In times of financial stress, in times of inflation, when there is fear for the [currency], gold does well," he noted. "Once the fears are past, gold goes back down."
Before gold broke the $1,000-an-ounce mark in mid-March, the previous peak was in 1980, when gold topped out at $850 an ounce. Although many were probably moved to invest back then, gold actually lost value over the 28-year period with inflation factored in. On the other hand, the Standard & Poor's 500 Index grew more than 12% a year over the same period.
Stocks can generally perform better against inflation since companies are able to raise prices. On the other hand, the supply of gold is continually growing, which may explain why their prices have not appreciated significantly over the long term.
Innovation at Dow's ETF
Dow Jones Indexes was named the "Most Innovative ETF Index Provider of 2007" in the Americas at the 4th Annual Global ETF Awards last week in New York, hosted by Exchangetradedfunds.com, which gave out forty-eight awards in 18 separate categories.
All winners were selected after various professionals and more than 400 firms in the global exchange-traded fund industry cast their votes.
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