Gold and gold equities have proven to be good long-term diversifiers of portfolios. This paper looks at the performance drivers, the different ways in which it can be accessed, and the benefits of these different approaches in a broader portfolio context.
20 Nov 2020
50 minutes
The fast view
Gold has long been considered an important part of a multi-asset investor’s toolkit. Although interest in the asset class as a standalone investment has historically fluctuated, its reputation as a safe-haven, inflation-protecting diversifier has accounted for its consideration within a broader portfolio. Sentiment around interrelated factors such as the level of US real interest rates, US dollar weakness, central-bank policies and uncertainty/market volatility has contributed to ebbs and flows in investor demand for gold. Although at times gold has experienced a somewhat unpredictable price performance, ultimately investors have been rewarded through attractive returns over the long-term with significant portfolio diversification benefits.
In 2020 we saw a perfect confluence of factors that pushed gold to record highs. Due in large part to the COVID-19 pandemic, rising economic uncertainty, inducing unprecedented levels of monetary easing and fiscal stimuli, combined with doubts about the defensiveness of government bonds to drive gold up through US$2000/oz. This backdrop, combined with an overall positive but volatile period for equity markets, also proved to be highly supportive for gold equities.
In this paper, we outline the characteristics underpinning the asset class and identify the key drivers we believe are important for its performance. This is followed by a summary of the different ways that investors can access gold and a description of the benefits we see these different approaches having in a broader portfolio context.
Commodity-related investment: Commodity prices can be extremely volatile and significant losses may be made.
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.
Authored by
George Cheveley
Portfolio Manager
Alex Holroyd-Jones
Portfolio Manager
Sam Anthony
Analyst
Ellie Clapton
Portfolio Specialist
Important Information
This communication is provided for general information only should not be construed as advice.
All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.