ADDING a Gold Investment to a portfolio could reduce risk and improve diversification, according to new research published by the World Gold Council.
In its report 'Gold: alternative investment, foundation asset', the WGC shows how movements in gold "do not follow those of either traditional or alternative assets" – such as hedge funds, broad commodities, private equity or real estate investment trusts (REITS).
"Research shows that gold has proven a consistent diversifier, risk management vehicle and store of wealth," says the report.
"Gold's unique demand and supply dynamics ensure its role as a true diversifier for investors. Gold demand is broadly distributed between jewelry, technology and investment."
Gold Investment remains rare, however, at just 1% of global assets under management – despite a growth in popularity of other alternative assets.
"Whereas many alternative asset classes have gained in acceptance among professional investors looking to increase their risk-adjusted returns and add diversification, allocations to gold remain small," the report notes.
The researchers also looked at seven market crises over the last quarter-century, including the Black Monday stock market crash of 1987, the Dot-com meltdown and the European sovereign debt crisis. In six out of the seven they find that a Gold Investment would have reduced losses in a portfolio.
"We find that gold helps to manage risk effectively in a portfolio, not only by means of increasing risk-adjusted returns, but also by reducing expected losses incurred under extreme market conditions," the report says.
"There is a strong case for gold to be considered an asset class on its own merits and a foundation for an investment portfolio.
In a separate report published this week, commodity strategists at Standard Bank argue that currency moves – such as a rise or fall in the Dollar – are "only short-term influences" on the Gold Price. The long run trend they say is determined by the price and availability of money and credit.
"The long-term value for gold [should be judged] relative to where global liquidity and real interest rates dictate gold should be," the strategists say.
"Accordingly, our view is that the Gold Price will push higher in 2012 amid the growing risk of a recession in the EU and the US and given that the US Fed appears to committed to an accommodative monetary stance."
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