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Gold Helps Manage Risk More Effectively

Topics [ invest in gold ]


For the technical heads out there, this World Gold Council paper* is worth a read. They conclude that gold “helps to manage risk more effectively by protecting against infrequent or unlikely but consequential negative events, often referred to as tail risks” and that “portfolios which include gold are not only ‘optimal’ in the sense of delivering better risk-adjusted returns, but that they can also help to reduce the potential loss”.

Key findings are:

•   gold allocations between 2.5% and 9% can decrease portfolio Value at Risk
•   portfolios including gold outperformed in 75% of 24 tail risk cases (eg Black Monday, LTCM crisis)
•   between Oct 07 and Mar 09 a benchmark portfolio with 8.5% to gold reduced total loss by 5%

Unfortunately, this is a US focused report. A job for my to-do list is to perform a similar analysis for AUD gold in a typical Australian super balanced managed fund.

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