- Volatility has returned to the markets
- Downside risks have increased dramatically
- Gold has been consistently one of the best portfolio hedges
- Why don’t you own it?
There are three reasons why you should own gold.
- Portfolio protection against volatility
- Inflation hedging
- Event risk hedging
Points 1 and 2 have increased from “no concern” or “neutral” in investors’ minds to “serious concerns” so we believe that all advisers and planners should be considering including gold in their client portfolios as it’s one of the most historically reliable hedges in such circumstances.
Gold protects portfolios against negative equity volatility
Just last week we had an example of gold performing as an event risk hedge when equity markets plummeted and the gold price surged upwards. On 5th February, we saw global equity markets fall with the S&P 500 down 4.1% and the ASX 200 down 1.6%, meanwhile the gold price was up 0.5% in USD terms as investors were turning risk averse. The year-to-date performance chart on the right highlights the price actions of the day. (Source: Bloomberg, data as of 13th February 2018)
Historical performance is not an indication of future performance and any investments may go down in value.
Gold against inflation
Gold is also widely viewed as a tool against inflation. Historically, the gold price tends to appreciate when inflation and interest rates are on the rise. The chart below shows how the gold price moves largely in-line with the inflation (CPI) of the United States.
Source: Bloomberg, ETF Securities as of close 31th December 2018
Event Risk Hedge
Lastly, although there have been no significant geopolitical events this year so far, it only takes one to roil the markets. As the table below shows, being in gold in nine out of ten of the events below was a positive when held within an investor portfolio.
Summary
There are three reasons why investors should own gold and two of them have dramatically spiked in terms of relevance. We believe all advisers should at least consider owning gold through this late economic cycle, where the probability of inflation and volatility is heightened.
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Email: ganesh.balendran@etfsecurities.com Email: chad.hitzeman@etfsecurities.com
Kanish Chugh Gemma Weeks
Co-Head of Sales Business Development Manager
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Email: kanish.chugh@etfsecurities.com Email: gemma.weeks@etfsecurities.com
DISCLAIMER
This document is communicated by ETFS Management (AUS) Limited (Australian Financial Services Licence No: 466778) (“ETFS”). This document may not be reproduced, distributed or published by any recipient for any purpose. Under no circumstances is this document to be used or considered as an offer to sell, or a solicitation of an offer to buy, any securities, investments or other financial instruments and any investments should only be made on the basis of the relevant product disclosure statement which should be considered by any potential investor including any risks identified therein.
This document does not take into account your personal needs and financial circumstances. You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances. Although we use reasonable efforts to obtain reliable, comprehensive information, we make no representation and give no warranty that it is accurate or complete.
Investments in any product issued by ETFS are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Neither ETFS, ETF Securities Limited nor any other member of the ETF Securities Group guarantees the performance of any products issued by ETFS or the repayment of capital or any particular rate of return therefrom.
The value or return of an investment will fluctuate and investor may lose some or all of their investment. Past performance is not an indication of future performance.
