World Gold Council: gold reduces investor risk

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WGC carries out report which shows long-term stability of metal.

The World Gold Council (WGC) has released a new report that claims that the amassing of gold as a private investment is becoming a desirable alternative to other forms.

Compared to private equity, hedge funds real estate and commodity trading, gold as an investment is said to reduce the risk of monetary loss while maintaining long-term returns.

The WGC report, Gold: Alternative investment, foundation asset, has analysed the effect of gold when included in a portfolio of mainstream and alternative assets.

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The council’s research reveals that portfolios with an allocation to gold of between 3.3% and 7.5% show higher risk-adjusted returns while consistently lowering Value at Risk (VaR).

Juan Carlos Artigas, investment research manager for the WGC said: "Alternative assets have gained acceptance among private and professional investors over the past decade as they look to increase risk-adjusted returns.

“However, many of these assets can have higher correlations to mainstream assets than investors once thought. Gold can produce distinct benefits to the performance of an alternatives portfolio due to its deep liquidity, low correlation to most asset classes and outperformance during periods of systemic risk.”

Artigas said that gold’s unique characteristics make it a good source of diversification in an investment portfolio.

The WGC’s report also explores the past performance of portfolios during periods of financial stress. The results highlight that on multiple occasions gold would have reduced the loss during these periods of stress while keeping similar or better risk-adjusted returns over longer periods of time.

Highlights from the report show that new money into hedge funds has doubled in the past decade. In the same period gold holdings by private investors have increased by 24% though gold remains an under-owned asset making up only 1% of global financial assets in private hands.

The WGC has found that gold acts as a cost-effective form of protection that benefits long-term expected returns, while reducing risk in times of economic turmoil.

During seven periods regarded to be ‘tail-risk’ events from January 1987 to June 2011, portfolios that included gold tended to perform better (by either posting gains or reducing losses) than those without.
 

 

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