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Kiersten Essenpreis for Money

Gold just hit a record high. Owning gold as part of your investment portfolio may still make sense — if your goal is protect yourself against a volatile stock market, rather than chase profits.

The price of gold reached its highest-ever on Monday, with spot prices briefly touching nearly $1,944 per ounce, well above the previous record of roughly $1,921 that was set in September 2011.

Gold prices tend to rise when the value of the U.S. dollar or Treasury yields fall. Both have dropped recently as worries about everything from U.S.-China tensions to how businesses will weather a resurgent COVID-19 weigh on investors’ minds.

Ryan Giannotto, director of research at GraniteShares, says investors are using gold as a hedge against the prospect of the dollar becoming less valuable as investors react to the Federal Reserve’s efforts to keep the economy moving.

“The Fed has gone into wildly uncharted territory. Effectively, they’ve injected trillions of dollars into the economy,” he says. “Investors are realizing this is not the dollar they knew from 10 or 20 years ago.”

Investing in Gold

Some investors have always speculated in gold, buying coins, jewelry or even bars. In recent years, popular funds such as the SPDR Gold Trust ETF have made it easier to incorporate gold into a traditional investment portfolio. Some financial planners recommend owning a small amount of gold, alongside stocks and bonds, to guard against market volatility. Most say gold shouldn’t amount to more than 5% over your overall investment portfolio.

One of the biggest drawbacks to owning gold is that it doesn’t pay any kind of a dividend, and its value depends on rising demand. “Gold is not going to pay you any income,” says Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “In order for you to make money on gold, it has to be worth more to someone tomorrow.”

But today’s market dynamics make this disadvantage less significant.

“Classically, people have used long-maturity Treasury bonds and notes” as a hedge against volatility while still earning returns, Haworth says, but there’s not too much to get excited about there, with the benchmark 10-year Treasury bond yield hovering around a paltry 0.6% or so. “Gold becomes a more interesting portfolio diversifier,” he says.

Low corporate bond yields and the tendency of riskier corporate debt to move in tandem with, rather than inversely to, the movement of the equities market has prompted more people to seek out an investment that is decoupled from the market. Gold’s value — however arbitrary it may seem — isn’t dependent on factors that underpin other market valuations.

“Gold is uncorrelated to many other assets. It’s uncorrelated to stocks and bonds,” Giannotto says. While this is somewhat true of other “real” asset classes like the broader commodities sector and real estate, these other categories still are exposed to a certain degree of market fluctuations, especially with the current increase in volatility.

Gold Prices Today

So, if you already have a diversified portfolio that includes either gold or gold-related ETFs, great. But what about buying in now, at the current lofty prices?

“I think the near term challenge is from a technical perspective — we are a bit overbought. We’re up $130 in a week or so, which is a pretty sizable increase,” Haworth says. “We're probably set for a pause and a setback in the near term.

Other experts echo this observation. “We’ve said buy on dips, but…it’s a difficult thing to do now because…you probably have missed out somewhat,” Johan Jooste, managing director of The Global CIO Office, tells CNBC.

If you want to get into — or more into — gold, you might want to stay on the sidelines until the froth settles a bit, Haworth says. “Wait a few days and see what happens to prices, if you get a little bit of a correction.”

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