Gold’s performance during tail events highlights its benefit as a low-correlation diversifier.
"7.79% p.a.—the compound annual growth rate for the LBMA (London Bullion Market Association) Gold Price PM since 19711."
Since 1971, when President Nixon removed the US dollar from the Gold Standard, the price of gold has increased from $43.28/oz. to $1323.85/oz. at the end of March 2018, generating a compounded annual growth rate of 7.79 percent per year.1 Gold’s prices are influenced by a diverse set of global drivers in pro-cyclical and counter-cyclical markets.
Gold’s historically low or negative correlation to other asset classes means the potential for greater diversification that could potentially lower portfolio volatility, enhance overall risk-adjusted returns and preserve purchasing power.
Improved Risk-Adjusted Returns
Because gold has historically tended to rise during stock market pullbacks, a strategic allocation to gold in a multi-asset class portfolio may help temper the impact of market volatility and reduce portfolio drawdown.
The average daily turnover of gold is over $250 billion, equivalent to $62 trillion per year. That makes the gold market larger than that of many stocks and bonds.2