AMP Capital chief economist and head of investment strategy Shane Oliver has warned investors against the temptation of being overweight in gold, despite the popularity of the precious metal at present.
The huge interest is evident with net speculative positions in gold running at extreme levels- which is negative from a contrarian perspective, Oliver said.
The price of gold has reached a new record high driven by a combination of factors including worries about inflation and paper currencies, central bank buying and a fall in the opportunity cost of holding it.
"Our assessment is that the surging gold price is not a sign of inflation to come. Massive global spare capacity suggests the bigger risk remains one of deflation," he said.
Oliver stressed that gold is highly speculative as it is not grounded in an income stream like other investment assets such as shares, property, bonds and cash.
"This can make for a volatile ride over time and suggests that gold should not dominate an investor's portfolio," Oliver said.
Oliver recommends an exposure to a broad basket of commodities which includes gold, where the supply and demand is generally more visible and understandable.
However, Oliver said the outlook for gold in the medium term remains positive despite risks of a short-term pullback.
"We are still in a very favourable part of the cycle for gold. Interest rates remain low and there are no signs they are about to shoot back up," he said.
