When prices of most commodities slumped due to global credit crisis, precious metals were the best performing group in 2008, according to an analysis by ETF Securities. And among precious metals, gold was the star performer, holding steady in USD terms while most other asset classes, such as equities, crashed.
Extreme financial market volatility and risk aversion since September has underlined precious metals attractiveness as a safe haven asset and event hedge. Precious metals with lower exposure to the business cycle—particularly gold—have tended to outperform other metals in the current economic downturn. Gold outperformed the DJ-AIG Industrial Metals Total Return Sub-IndexSM by 85% over the past 12 months.
Gold stands out as having one of the highest-risk return profiles (as measured by the Sharpe ratio) across commodities and asset classes. Stagnating long term new gold supply should provide support to gold prices in the medium term. Meanwhile, physical demand for gold hit a record high in 3Q 2008.