Where to invest in 2006: going for gold again?

For 2005 our verdict was pretty clear: 'Go for Gold' we argued last December, and a year on and gold is indeed the best performing major asset class of the year, up by more than 20% at the last count.

We were also pretty hesitant about many alternative investments. To be fair we were wrong about GCC equities, which continued to soar until mid-year, although since then two corrections have taken the wind out of the bull's sails. The US dollar too, confounded expectations and headed up rather then down, massacring hedge fund profits in the process.

So for 2006, where does this column believe is the best place to invest?

1. Gold again.

Gold has not shared in the same powerful rally that has driven other metal and commodity prices skywards. Indeed, relative to the price of oil, gold languishes at a 25-year low, and is dirt cheap.

Forget arguments about inflation and US debt levels, a simple catch-up is taking place that should send gold to $650-700 an ounce this year and possibly higher. To profit buy bullion, large mining shares, or smaller gold exploration companies if you feel adventurous (more on how to invest in gold will follow in later columns).

2. Dubai villas and offices, and Abu Dhabi and Qatari off-plan property.

Real estate remains an excellent investment in booming emerging markets, and they do not come any hotter than these tiny Gulf State energy economies which have recently opened up to foreign investment.

Dubai is clearly building too many high rise apartments and the off-plan market has collapsed; but villas are scarcer and rental yields still attractive; offices are also in short supply.

3. Energy stocks.

In 2005 we told investors to hold on to oil and gas shares, and those that did so must be smiling. For 2006 we will be so bold as to predict an even higher oil price as growth in China and India is unabated and the US economy is still expanding rapidly.

But be aware that this party can not last much longer, and that energy stocks may have to be quickly sold at some point. Kuwait's sale of a large stake in BP looks premature but might be a sign of things to come.

4. Asian equities.

If you have to stick your pension money somewhere then analysts at fund managers such as Invesco make a very good case for Asia. Stock market valuations still look very reasonable, debt levels are low and local currencies could well advance against the US dollar in the near future. This is clearly also a play on the high growth rates in China and the Asian tiger economies which these days also includes India.

5. A deposit account in US dollars.

Perhaps the worst investment of 2005 was a bet against the US dollar for the simple enough reasons that continuous interest rate rises made holding the greenback more attractive and petrodollars had nowhere else to go but US Treasuries. But watch-out for higher inflation that will begin to erode real returns.

Happy investment returns for 2006!