WGC Says Crisis Has Shown Gold Is Insurance Policy as Well as Safe Haven

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For those who owned gold during the period of turmoil, the policy has served different functions, including a cushion during an abysmal period for asset returns and for investors with leverage - a liquid asset that retained its value in relative terms and could be sold at a reasonable price. "These insurance policy properties suggest that a core holding in gold is appropriate, whatever the cyclical conditions," said the WGC.

The World Gold Council (WGC) says in its latest Gold Demand Trends publication that the safe haven motive was an important driver as seen in the gold price showing less volatility than other commodities since the events of the third quarter.

"Although volatility has increased since the credit crisis erupted, gold has remained less volatile than other commodities. Furthermore, the gold price has been resilient to a broader decline in commodity prices, outperforming other commodities in relative terms."

The GSCI commodity index was down approximately 30% from its peak at the end of the third quarter, while the gold price was 13% below its peak. Its relative out-performance was also one of the factors that eventually resulted in its fall from highs seen earlier in the quarter as gold was one of few assets that could be sold at a reasonable price to meet margins or calls on other assets...

It said gold's safe haven status has received the most attention as investors sought out physical assets immune to default risk. This has benefited both demand for ETFs, bars and coins with demand for the single largest gold ETF, the US-listed SPDR Gold Shares, increasing by 110.6tonnes ($7bn) over five consecutive trading days during September...

The WGC concluded that recent events suggested the term "insurance policy" was probably a more accurate description than "safe haven", when referring to gold. For investors who owned gold during the period of turmoil, the policy has taken several different forms, including a cushion during an abysmal period for asset returns and for investors with leverage - a liquid asset that retained its value in relative terms and could be sold at a reasonable price. "These insurance policy properties suggest that a core holding in gold is appropriate, whatever the cyclical conditions," said the WGC.

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