Your Money - has gold lost its glitter?

A Hittite king once observed that gold in ancient Egypt was ‘as common as dirt’.

He might just as well have been talking about the narrow lanes of Dubai’s colourful Gold Souk by the Creek, where hundreds of tiny shops jostle to display exotic jewellery of every conceivable shape and design.

The allure of gold hardly seems to have changed in 3,000 years; the king was not disparaging the precious metal, but hoping to persuade a pharaoh to send him more of it in return for his daughter’s hand in marriage. But the price of gold has been behaving strangely in recent months, confounding the predictions of many experts.

It has fallen sharply, down 17 per cent from its peak last year, and last month alone it shed 6 per cent of its value. The slide is puzzling to many people because it comes at a time of growing turmoil in international financial markets, caused by the crisis in the eurozone.

Traditionally, the gold price has risen at such times as investors have seen it as a safe haven. Not this time. So what is happening, and does gold look like a good investment for your portfolio from now on? As usual, the experts can’t seem to agree. Here’s what they are saying:

THE BANDWAGON HAS LEFT

And if you didn’t jump on it, it’s too late. According to this theory, one of the largest bull runs in history, in which gold rose more than five-fold in value from the year 2000, petered out last year and will not resume. It simply has no energy left and will plateau from here, or fall. Congratulations if you had the foresight, or luck, to get on board when the going was good. Too bad if you didn’t.

GOLD IS NOT THE ONLY SAFE HAVEN

The dollar has traditionally been one too, and it is playing that role again now. America is still by far the world’s biggest economy and it looks in good shape compared to Europe. Many investors are betting that America’s strong performance will continue, and gold is losing out as a result.

GOLD IS JUST TAKING A BREATHER

To be fair to gold enthusiasts, many predicted that the price would stabilise this year, before - in their view - resuming its upward trend. Their confidence is based on a belief that the global financial crisis is going to get worse, engulfing not only America but possibly Asia as well - and even this region if oil prices fall. In the most extreme scenario, people will lose confidence in paper money, in any currency, and ultimately they will turn to gold as the ultimate store of value and even unit of exchange.

THE CHINESE KNOW BEST

China’s economy is doing pretty well these days and many investors watch what goes on there in order to do the same thing, whatever it might be. And the Chinese like gold. Demand for it has risen 10 per cent there this year, says the World Gold Council.

It might be smart to follow suit.

With so many competing theories, it’s hard to know to buy or sell on your next visit to the souk. At least enjoy a stroll while you make up your mind.

Bob Parker is managing director of Holborn Assets. If you have a question for Bob, email him at bob@holbornassets.com