Gold Best Asset Class in Past 10 Years

Source:

"For 10 years, gold outperformed nearest competitor, bonds, by >240%."

Over the most recent 10-year period, in UK terms gold has outperformed its nearest competitor (bonds) by over 240%. As investors have paid the penalty for increasing risk exposure over the period, the presence of gold in a portfolio matrix has boosted returns into positive territory. At a recent presentation the senior analyst at ETF Securities produced a series of analyses that underpin gold's role as a hedge against risk.

The body of the presentation included the following demonstrations.

RELATIVE PERFORMANCE

Over the past 10 years, gold has outperformed the next best asset class by a factor of just over two. Its outperformance against equities has been consistent over past one, three, five and 10 years and for that matter gold has also been the least volatile asset class. Its correlation with equities has remained zero or modestly negative, giving strong portfolio diversification.

PORTFOLIO ENHANCEMENT

Over the same 10-year period, equities and bond portfolios have had a downward slope over past 10 years, penalizing investors for taking on extra risk. Adding gold to the portfolio has rendered the return positive. Thus gold acts as a buffer for portfolios in times of high economic uncertainty.

A SALVE IN TIMES OF UNCERTAINTY

During periods of high inflation gold returns are commensurately high, though the relationship is not strong when inflation is "normal" (i.e., 1%–5%).

Further, gold is often thought of as a USD hedge and typically there is an inverse correlation. Note now, though how the relationship has been positive as confidence wanes in the viability of the euro as a credible alternative reserve currency.

ETF DEMAND—INCREASINGLY IMPORTANT MARKET DRIVER

In 2009, gold ETF demand outstripped coin/bar investment for the first time. It accounted for 10% of investment demand in 2003, but was roughly 1/2 the total in 2009—underlining increasing importance of ETFs as a price maker and price taker.

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