In a strict sense, commodities may not even be an investment asset class, because they don’t produce any cash flow or earnings or dividends. That’s the view of Gary P. Brinson, a scholar and veteran strategist based in Chicago.
“A bar of gold is just a bar of gold,” he said in a telephone interview last week. “It doesn’t do anything. There’s a market for it, sure, just as there is for, say, a work of fine art, and if you buy and sell at the right price, you’ll make a profit. But if there’s no cash flow, no dividend, no earnings, how do you calculate its intrinsic worth?” Answer: “You can’t. It’s not that kind of an asset.”
In the 1980s and ’90s, Mr. Brinson did path-breaking research on the effects of asset allocation on portfolios. In two papers in the Financial Analysts Journal, he and several colleagues found that broad decisions about asset classes — which to hold and in which proportions — accounted for more than 90 percent of a portfolio’s performance.
Of course, it’s much easier to discern trends after the fact, and on that score the picture for gold isn’t entirely attractive. It peaked in price in 1980 at $850 a troy ounce. Factor in inflation, and that comes to more than $2,400. After more than 30 years, in other words, an investor in gold would still be operating at a loss, without even counting the cost of storing and protecting the gold.