ADDING a physical Gold Investment to a Euro-denominated portfolio could increase its diversification, and thus its performance, new research published today suggests.
Adding a Gold Investment to the majority of sample portfolios studied would have improved the risk-return profile for European investors, according to independent analysis by leading investment research firm New Frontier Advisors (NFA).
NFA used pioneering statistical techniques to analyze 25 years' of data from the perspective of investors whose assets are denominated in Euros – with the European Currency Unit (ECU) substituting for the Euro for periods before 1999.
Their report, entitled 'Gold as a strategic asset for European investors' and published by the World Gold Council today, finds that adding a Gold Investment to a portfolio – rather than swapping gold for an existing investment – offers distinct benefits.
"Gold does not appear to be a substitute for other assets," the report says, "but seems to add significant diversifying power due to its low or negative correlation with most other asset classes."
NFA looked at five sample portfolios containing assets typically held by Eurozone investors. The aim was to determine, based on an investor's appetite for risk, whether a given portfolio would benefit from the addition of a Gold Investment and how much of the portfolio should be in gold – a procedure known as 'portfolio optimization'.
The addition of gold was found to benefit European investors in the majority of cases.
For example, the optimum allocation to gold for low risk investors was found to range from 2.2% to 5.4% – suggesting a typical European portfolio would have benefited from the addition of gold.
For medium risk investors, the optimum allocation to gold ranges from 3.3% to 9.3%. For higher risk Eurozone investors – defined as those holding a lot of shares – the optimum Gold Investment was found to be as high as 10% of a portfolio.
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