New report confirms gold as an excellent portfolio diversifier
New research confirms gold's unique role as a diversifier and foundation asset in the portfolios of euro-based investors, especially at a time of heightened currency and investment risk.
Posted: Tuesday , 06 Dec 2011
During a period of extraordinarily serious economic uncertainty in the Eurozone, continued concerns about economic growth in the US heading into an election year, and the possibility of an economic slowdown in China, The World Gold Council (WGC) wanted to examine the relevance of gold as a strategic asset for euro-based investors to protect their portfolios and to mitigate the systemic risks being faced.
Thus, a new study from New Frontier Advisors (NFA) entitled, ‘Gold as a strategic asset for European investors', was commissioned by the WGC to address these concerns. The NFA's respected optimiser is used to analyse the statistical significance of gold for adding diversification value to an investment portfolio from the currency base and perspective of a Euro based investor. It takes a conservative strategic return expectation that the long-term real return of gold is equal to zero.
The findings suggests that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to between 4-9% for portfolios split 50/50 between equities and bonds and as high as 10%, for portfolios with the majority of assets in equities.
The NFA study makes a valuable contribution towards the World Gold Council's own body of investment research, adding further third-party evidence to the case for gold as a foundation asset which provides insurance against extreme events. The WGC believes that the relevance of gold as a strategic asset is likely to continue to grow in a world characterised by sluggish economic performance, poor investment returns, currency wars and high individual and systemic risk. Gold has unique properties which can protect European investors' portfolios against the systemic risks being faced.
The full WGC report may be downloaded here