INVESTING IN a commodities index is not an effective substitute for an outright Gold Investment, according to research published Tuesday by the World Gold Council.
In its report Gold: a commodity like no other, the World Gold Council argues that Gold Bullion should be viewed as a distinct asset class, and that a broad commodities index does not offer effective exposure to Gold Prices.
"Our research makes clear that to achieve true diversification, an allocation to an outright position in gold provides benefits that cannot be replicated simply by investing in a wider commodities basket," said Juan Carlos Artigas, investment research manager at the World Gold Council. "This paper, therefore, supports the premise that gold should be viewed as a separate, distinct asset class, and a foundation to a well-diversified investment portfolio."
The report found that investment returns on commodities and commodities indices were not well correlated with the return on a physical Gold Investment.
Returns on the S&P Goldman Sachs Commodity Index, for example, had a correlation of 0.28 with those on gold for the period January 1991 to December 2010. A perfect correlation would have given a figure of 1.00.
Some analysts have in the past argued that Gold Bullion is not actually a commodity at all, but is in fact analogous to money, since it is much less susceptible to supply-side shocks than other commodities.
In an article published by the London Bullion Market Association in its Alchemist Magazine, Steven Mathews, then commodities strategist at Tudor Investment Corporation, compared the "days remaining of supply" for gold – the number of days that existing stocks would meet demand if there – with that of other commodities.
Whereas crude oil stocks could, at that time, be expected to last for 100 days, and copper stocks for 72 the figure for gold was over 7000.
"The right way to trade gold is as a foreign currency, not as a commodity", concluded Mathews.
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