WGC report, gold –a strategic asset!
Recently world Gold Council (WGC) has revealed the report on gold, The relevance of gold as a strategic asset!
The report says, gold is a highly liquid yet scarce asset, and it is no one’s liability. It is bought as a luxury good as much as an investment.
As such, gold can play four fundamental roles in a portfolio, 1: a source of long-term returns, 2: a diversifier that can mitigate losses in times of market stress, 3: a liquid asset with no credit risk that has outperformed fiat currencies & 4: a means to enhance overall portfolio performance. WGC said: “Our analysis shows that adding 2%, 5% or 10% in gold over the past decade to the average pension fund portfolio would have both increased returns and reduced volatility, resulting in higher risk-adjusted returns.”
Gold is becoming more mainstream. Since 2001, investment demand for gold worldwide has grown 18% per year, on average. This has been driven in part by the advent of new ways to access the market, such as physical gold-backed exchange-traded funds (ETFs), but also by the expansion of the middle class in Asia, and a renewed focus on effective risk management following the 2008–2009 financial crisis in the US and Europe.
Gold is not only useful in periods of higher uncertainty. Its price has increased by an average of 10% per year since 1971, when gold began to be freely traded following the collapse of Bretton Woods. And gold’s long-term returns have been comparable to stocks and higher than bonds or commodities.
During the Gold Standard and subsequently the Bretton Woods system, when the US dollar was backed by and pegged to the price of gold, there was a close link between gold and US inflation. But once gold became free floating, US inflation was not its main price driver. Sure enough, gold returns have outpaced the US consumer price index (CPI) over the long run, due to its many sources of demand. Gold has not just preserved capital, it has helped it grow.
Apart from above, the report says gold is a high-quality hard currency, its’ Diversification that works, gold has A deep and liquid market & thus it is enhancing portfolio performance. Gold is often lumped together with the commodity complex by investors and investment practitioners alike. Whether as a component in a commodity index (e.g., S&P Goldman Sachs Commodity Index, Dow Jones UBS Commodity Index), one of the securities in an ETF, or as a future trading on a commodity exchange, gold is viewed as a part of this complex.
Gold undoubtedly shares some similarities with commodities. But a detailed look at the make-up of supply and demand highlights that the differences outnumber the similarities:
1: The supply of gold is balanced, deep and broad, helping to quell uncertainty and volatility
2: Because gold is not consumed, its above-ground stocks dwarf the stock levels of other commodities
3: Gold demand comes from a wide range of segments and regions
4: Gold has a lower correlation with the global business cycle.
Gold’s unique attributes set it apart from the commodity complex. From an empirical perspective, including a distinct allocation to gold has improved the performance of portfolios with passive commodity exposures.
