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Gold Price Volatility "More Stable than Stocks'" During 2011 Market Crises

DESPITE a rise in Gold Price volatility during periods of financial market stress last year, there is evidence to suggest gold remains an effective portfolio diversifier, according to a new report from the World Gold Council.

"While Gold Prices were not immune to the effects of financial markets swings," the report from the global gold market development organization says, "its volatility was considerably more stable than that experienced by equities."

The report finds that during periods of heightened uncertainty last year, Gold Price volatility – a measure of how much the price moves around its average over a given period – rose less than that of the S&P 500.

Last August saw the US downgrade, riots in London and a significant escalation of the Eurozone crisis, while October was dominated by Greek debt uncertainty ahead of that month's European Union summit. In both months, Gold Price volatility rose by less than that of the S&P.

A spike in stock market volatility relative to that of gold "is what typically occurs in periods of higher uncertainty in financial markets," the report notes.

The report also addresses the observation that the Gold Price appeared more highly correlated with stock markets during periods of last year.

"Many market observers pointed towards an increase in gold's correlation to equities as a sign of less robust diversification," the report says.

"Our analysis shows that this is not necessarily true and while short-term changes in correlation could be observed, gold's long-term low correlations to most assets underpin its effectiveness as a portfolio diversifier."

The report can be downloaded from the World Gold Council here (free registration required – visit here to register)

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