Is Gold Good for

Portfolio Diversification?

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GOLD - PORTFOLIO DIVERSIFICATION

Portfolio diversification refers to reducing

investment risk by purchasing a variety of
assets
1. A random selection of assets already
reduces risk, However, diversification is
more efficient, if the portfolio assets are
not correlated, i.e. they do not move into
the same direction. Investors seek a
portfolio that has a minimum of risk and a
maximum of return
2. compared to a one-asset investment

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GOLD - PORTFOLIO DIVERSIFICATION

1. Gold is mostly uncorrelated with most

other assets and moves independent of key
economic indicators
2. This makes it a good diversification
opportunity in portfolios
3. Studies show portfolios containing gold
are more robust and better able to deal
with market uncertainties (Jeffrey & Jaffe
1989, FAJ)

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GOLD - PORTFOLIO DIVERSIFICATION

1. It is suggested that 5% to 15% of the

investment portfolio should contain this
precious metal. Since the beginning of
2000, gold has been a valuable portfolio
asset
2. However, before 2000, gold was an
attractive portfolio asset only between
1974 and 1979 and 1993 and 1999

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GOLD - PORTFOLIO DIVERSIFICATION

Even though gold is a good portfolio

diversifier, the question is whether it outpaces
a broader mix of commodities, or a purely
non-commodity portfolio

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GOLD - PORTFOLIO DIVERSIFICATION

1. Larry Swedroe from Buckingham Asset

Management compares the annual return
of three diversified portfolios
2. 1. a non-commodity portfolio
3. 2. A portfolio with a mix of commodities
4. 3. a portfolio with gold
5. From 1970 until 2010 the annual returns of
these portfolios were 11.36%, 11.32% and
11.29% resp.

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GOLD - PORTFOLIO DIVERSIFICATION

1. Once can see that the three portfolio types

offer very similar returns, with the gold
portfolio even the lowest
2. Therefore, it can be concluded that
though gold is a reasonable portfolio
diversifier, there are exist equal other
options

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