Insights

                           


Gold For Portfolios

  • Gold’s historically low or negative correlation to other asset classes means the potential for greater diversification.
  • A strategic allocation to gold may help reduce the impact of market volatility.

George Milling-Stanley
Head of Gold Strategy

Why Consider Investing in Gold?

Gold is both an investment and a consumer good. Global economic growth, income growth, monetary policy and market volatility drive demand.

A strategic allocation to this unique asset class may help an investor to pursue the following potential benefits of gold:

  • Long-term returns
  • Greater diversification
  • Improved risk-adjusted returns
  • Deep liquidity

 

 

Gold’s low correlation with major equity and bond markets underscores its potential in diversified portfolios.

 

 

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." 

 

Long-term Returns
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.

Greater Diversification
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.

Deep Liquidity
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

Footnotes

1 Bloomberg Finance L.P., State Street Global Advisors, August 13, 1971– March 31, 2018.
2 Source: A study carried out by London Bullion Market Association and overseen by the Bank of England and the Financial Conduct Authority; GFMS-Thomson Reuters, date as of December 31, 2017.Diversification does not ensure a profit or guarantee against loss.

Important Information

Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Currency exchange rates between the U.S. dollar and non-U.S. currencies may fluctuate significantly over short periods of time and may cause the value of investments to decline. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Diversification does not ensure a profit or guarantee against loss. Investing in commodities entails significant risk and is not appropriate for all investors. There can be no assurance that a liquid market will be maintained for ETF shares. The World Gold Council name and logo are a registered trademark and used with the permission of the World Gold Council pursuant to a license agreement. The World Gold Council is not responsible for the content of, and is not liable for the use of or reliance on, this material.