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New study backs gold as an effective hedge

The case for adding gold to your investment portfolio has won a powerful new advocate.

Cameron Crise, Bloomberg’s Macro Man and self-confessed gold sceptic, recently undertook a “Mythbusters-style approach” to ­discovering whether gold is an effective hedge in times of risk.

His investigation tests the argument that a small stash of gold can balance out losses in other assets during market turmoil and political crisis.

Previous analysis in this area supports the notion that over time, gold holds its value and outperforms risk assets in such circumstances. Crise looks at only modern data from between 1990 and 2015 to see if the contention remains valid.

He begins by looking for evidence of a statistical relationship between risk aversion and the price of gold, and subsequently tests the potential pitfalls of the methodology employed.

Surprised at the results, he admits that before the study he thought gold’s effectiveness as hedge was “simply a myth”.

Based on the findings, Crise concludes: “Given the solid performance of a portfolio including gold and the chance that the comfort of owning some might prevent investors from panicking at the height of a crisis, I have to conclude that the notion of gold as a hedge against serious risk aversion is true.”

 

Source: Bloomberg - Is Gold Really a Good Hedge? by Cameron Crise.

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