WHAT OTHERS ARE THINKING
Independent analysis by Oxford Economics suggests that gold’s share of an optimal portfolio is around 5% in a base long-term economic scenario featuring 2.25% growth and 2% annual inflation1. The optimal allocation rises in a more inflationary long-run scenario and also does so for more risk-averse investors in a scenario featuring weaker growth and low inflation.
The World Gold Council commissioned the study entitled ‘The impact of inflation and deflation on the case for gold’. Marcus Grubb, Managing Director of Investment, the World Gold Council, said: “This research comes at a time when high inflation is an ongoing reality for many developing economies, while Western economies face the threat of protracted low growth, low inflation or even deflation. In this context, we wanted to understand why gold is being reconsidered as a risk management asset, particularly if one of the many divergent inflation scenarios came to pass.”
Key findings of the report are:
• Gold performs relatively well compared to other assets in a high inflation scenario as well as in a deflationary period.
• Due to its lack of correlation with other assets gold has a useful part to play in stabilising the value of a long-run portfolio even if a modest negative real annual return is assumed.
• Gold’s optimum share of an investor’s portfolio is around 5% in a base long-term case for the UK featuring 2.25% growth and 2% annual inflation1. This is a higher allocation than seen in typical mainstream portfolios, although the analysis does not include other assets such as index-linked bonds, foreign securities and other commodities.
• Gold’s optimal share in an efficient portfolio rises in a more inflationary long-run scenario and also does so for more risk-averse investors in a scenario featuring weaker growth and low inflation.
Read the full World Gold Council media release.
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