New research by New Frontier Advisors (“NFA”) confirms gold’s unique role as a diversifier and foundation asset in the portfolios of euro-based investors, especially at a time of heightened currency and investment risk.
The report, ‘Gold as a strategic asset for European investors’, commissioned by the World Gold Council, explores gold as a strategic asset across five sets of asset allocation studies, including four using historical data spanning 1986 to 2010, and one using the 1999 to 2010 time frame.
The paper highlights that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to 4-9% for portfolios split 50/50 between equities and bonds, to as high as 10% for portfolios with the majority of assets in equities.
The research uses the Michauds’ unique Resampled Efficient Frontier™1 optimisation technology to allow analysis of the statistical significance of gold for adding diversification value. For each data universe, three different sets of optimised asset allocations are utilised: without gold and commodities, with gold and without commodities, and with both gold and commodities. The analysis assumes that gold has zero real returns.
The paper finds that gold adds significant diversifying power due to its low or negative correlation with most other assets in an optimised portfolio context.
Marcus Grubb, Managing Director, Investment for the World Gold Council, said:
“During a period of extraordinarily serious economic uncertainty in the eurozone, we wanted to examine the relevance of gold as a strategic asset for euro-based investors to protect their portfolios and to mitigate the systemic risks being faced.
“The conclusion of the research from NFA provides evidence that gold offers particular value as a strategic diversifier within a European portfolio. Put simply, when used as a foundation asset, gold preserves wealth.”
This research builds on the World Gold Council’s own fundamental research for investors and supports the findings from recent reports on gold as a portfolio diversifier. All reports can be viewed at: www.gold.org/media/
1Invented by Richard Michaud and Robert Michaud. U.S. patents 6,003,018, 6,928,418, 7,412,414, 7624,060: Israel 138018. Worldwide patents pending. New Frontier Advisors LLC is worldwide licensee.
For further information please contact:
World Gold Council
T +44 20 7826 4763
T+44 20 7255 5154
Download this document (0.1 MB)