Should You Invest in All That Glitters?

In the past, gold has been unaffected by downswings in the market and was seen as an uncorrelated asset. Gold's apparent disconnect from stocks made it a solid investment unlikely to be affected by the fate of the market. But, according to a report in Forbes, gold may be entering the market mainstream.

The price of gold has risen by 130% since February 2000 compared with the S&P 500's return of 11% and the Nasdaq's decline of 45%. The gold bullion exchange-traded fund StreetTracks Gold Shares has increased to $10 billion in the previous 2 years, trading at $66 a share. However, in Winter 2006, Gold fell by $23 an ounce after a drop in the Shanghai stock market and continued to have what seemed to be a connected response to the market. Should gold investors be worried that gold will no longer be a safe and separate asset? James Grant, editor of Grant's Interest Rate Observer, says that the short-term risk for such a connection lies with those investors quick to sell when stock prices drop, but the long-term rewards may just cause an extended bull run for gold.