LONDON (Commodity Online): If there is an economic crisis world over and if you want to keep your money in a very safe way, there is only one thing you can bank on, that is gold.
The World Gold Council has also found out this indomitable position of gold when it comes to hedging against any economic worries.
According to World Gold Council’s regular quarterly appraisal of the gold market, the yellow metal increased modestly in the second quarter, supported by, among other things, ongoing inflation fears.
Traditionally an inflation hedge, gold was sought by investors who had growing concerns about central banks’ exit strategies and the implications of a reversal in quantitative easing measures.
On gold’s inflation hedge credentials, Natalie Dempster, head of investment, North America, World Gold Council, said: “Fears of future inflation drove investor interest as seen by the continued demand for the ETFs during the quarter. Traditionally, gold has been an effective inflation hedge, and as our recent study shows, also performs well during low to medium inflationary environments.”
The study, which examined the relative performance of four traditional inflation hedges (gold, real estate, Treasury Inflation-Protected Securities (TIPS) and general commodities), found that in two of the three historical scenarios, gold proved more effective than commodities, real estate and TIPS, at achieving both the maximum reward-risk portfolio and the minimum-variance portfolio.
The required allocation to gold in the portfolio mix to attain minimum variance ranged from 4.0 to 6.3%, while the allocation required to achieve the maximum reward-risk ranged from 7.0 to 9.9%.
A 6.9% allocation to gold also produced the highest reward-risk portfolio in the forecast scenario, while an allocation to TIPS produced the lowest variance portfolio. The analysis also found a strategic case for gold in the portfolio of an investor that already holds TIPS, thanks to the additional diversification benefits gold brings to a portfolio.
The WGC’s latest Gold Investment Digest, just out, also pointed out that the gold price edged slightly higher in Q2 2009, ending the quarter at US$934.50/oz, on the London PM fix, compared with US$916.50/oz at the end of Q1 ‘09. The gold price fixed as high as US$981.75/oz on June 1 coinciding with the quarterly low in the dollar, which was pressurized, among other things, by growing questions about its future as the world’s reserve currency.
While other asset classes such as oil, the commodity complex in general, and equities outperformed gold during the second quarter, on a year-over-year basis gold posted a small gain while the others suffered sharp declines.
Investors continued to increase their gold holdings via exchange traded funds in the second quarter, though at a much slower pace than the record amount of gold purchased via this channel in Q1 ‘09. Retail investment in coins and small bars also slowed in the second quarter, according to the anecdotal reports from dealers, while investors marginally increased their holding of gold futures.
More broadly, gold was seen as being supported throughout the quarter by increasing signs that the worst of the global recession might be behind us and a corresponding uptick in investors’ fears about future inflation.
