Gold Reduces Risk For Alternative Investors
Wednesday, November 02, 2011

A distinct allocation to gold within a portfolio including alternative assets such as private equity, hedge funds, real estate and commodities, can preserve capital and reduce risk without diminishing long-term returns, concludes the latest research from the World Gold Council.

The report, Gold: Alternative investment, foundation asset, analyses the effect gold has when included in a portfolio of mainstream and alternative assets. The research shows that portfolios with an allocation to gold of between 3.3% and 7.5% (depending on the risk tolerance of the investor and the currency of reference) show higher risk-adjusted returns.

Juan Carlos Artigas, Investment Research Manager for the World Gold Council, said:

"Alternative assets have gained acceptance among private and professional investors over the past decade as they look to increase risk-adjusted returns. However, many of these assets can have higher correlations to mainstream assets than investors once thought. Including gold can produce distinct benefits to the performance of an alternatives portfolio due to its deep liquidity, low correlation to most asset classes and outperformance during periods of systemic risk."

"Gold's unique characteristics make it a good source of diversification, and also provide a foundation which investors can use to manage risk and preserve capital."

Earlier this year, SPDR Gold Shares became the largest exchange traded fund (ETF) in the world by assets, as investor confidence in equity markets and the global economy in general evaporated amid the debt crises in the eurozone and the United States.

According to State Street Global Investors, which markets SPDR Gold Shares, the fund has returned 21% since its inception in 2004. However, in the 12 months which ended July 31, 2011, the fund returned a massive 38.77%.

While the gold price rally is being driven by demand for the metal from across the globe, some investment managers have become a little nervous that some sort of market correction could be around the corner, prompting some to reduce their exposure to the metal. With the global economic outlook uncertain however, most remain bullish about gold's long-term prospects.