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Gold hits five-year highs: should it be a Strategic Allocation?

Should Gold be considered an Institutional Asset Class in its own right?

This week, the gold price has hit five-year highs, in tandem with 10Y US Treasury yields falling back below 2% for the first time since November 2016. 

Should asset allocators re-examine the possibility of holding gold as a strategic allocation? In the first paper below, the World Gold Council examines the characteristics of gold and its value as a strategic and diversifying asset.

In a similar vein, Amundi Asset Management discusses the specific case for gold allocations within central bank reserve portfolios, especially considering the interest in diversifying away from dollar-dominated reserve allocations and into additional currencies and alternative assets.  

Gold price chart

Gold as a Strategic Asset in 2019 (World Gold Council blog, Mar 2019)

For compliance reasons, this paper is only accessible in certain geographies

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: a source of long-term returns, a diversifier that can mitigate losses in times of market stress, a liquid asset with no credit risk that has outperformed fiat currencies, and a means to enhance overall portfolio performance.

Gold in central banks' asset allocation (Amundi AM, Mar 2019)

After a long lacklustre period during the 1980s and 1990s, the price of gold has picked up significantly since the new millennium, and central banks, after having steadily reduced their allocation to gold, have resumed their gold purchases. This has been particularly the case for emerging central banks. This paper by Amundi Asset Management explores the relevance of gold as an asset class for central bank portfolios and conduct portfolio simulations, using their 10-year forward-looking scenarios and asset returns, as well as diversification-based optimisation schemes, which best emphasise gold’s diversification potential.

Is gold really a hedge against inflation? (DWS AM, July 2017)

For compliance reasons, this paper is only accessible in certain geographies

DWS AM argue that historical correlations don’t support that theory that gold is an inflation hedge, but instead suggest that it could be a hedge against declining growth expectations.

Who Wins and Who Loses, if Gold Keeps Rising? (Axioma blog, Mar 2019)

In this blog post, Axioma's Diana R. Rudean, PhD, examines who the likely winners (and losers) are if gold continues to rise, and equities fall in a 'risk-off' environment. 

The Case for Gold as a Strategic Allocation (State Street Global Advisors blog, May 2018)

State Street Global Advisors presents the case for gold as a core diversifying asset with a long term strategic role in portfolios.

Gold - has it lost its shine? (LGIM blog, Sep 2018)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Does gold merit a place amongst the holdings of institutional portfolios? LGIM investigates this question, given volatility in gold prices in 2018.

Gold 2048 - The Next 30 Years for Gold (World Gold Council, 2018)

This paper reviews long term demographic and economic trends, emerging market demand and supply dynamics, the gold mining industry, and gold's usage in the jewellery and technology industries in order to provide a picture of the likely evolution of the gold market over the next three decades.

The Golden Dilemma - investing in Gold (2013)

Gold, for many investors, has only recently become a viable tradable asset despite having been described as the "golden constant” and used as an inflation hedge for thousands of years. The real price of gold is high, historically, so care should be taken. The price of gold in the past gold real returns have been below average when the real price of gold was in fact above average.