Why hold gold in a portfolio?
For millennia gold has been sought after for both its beauty and its functionality. It has often served as money and to this day investors ranging from individuals to central banks hold the metal as a trusted store of value.
One of the main reasons many astute investors allocate 5-10% of a diversified portfolio to gold is the asset’s history of delivering attractive long-term returns.
Gold’s long-term outlook
The price of gold rose from below USD 40 per ounce at the beginning of the 1970s to USD 1,550 per ounce in September 2019.
Gold has also performed well relative to other asset classes, as illustrated in the following graph. It shows the returns on gold as well as the capital return on stocks, and the total returns on cash and US Treasuries, over multiple time periods from the end of 1971 to the end of 2018.
Source: Portfolio Visualizer, London Bullion Market Association, St Louis Federal Reserve, www.macrotrends.net, The Perth Mint. Chart covers time period from December 31 1971 to December 31 2018. Indices Used: Stocks: S&P 500, Gold: London Bullion Market Association Gold Fix Price, Cash: 1 month Treasury Bills, Treasuries: 10 Year US Treasuries. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. Investors cannot directly invest in an index. Past performance does not guarantee future results.
With stocks recovering from their more than 50% declines witnessed during the global financial crisis, it is not surprising they have outperformed gold over the past seven to 10 years.
However this has not stopped the yellow metal from being the highest performing asset class over the past 20 years.
Since the end of the 1971, gold has risen by more than 7.5% per annum, outperforming cash and US Treasuries over this time period.
With the recent gold price rally buoying the precious metal by more than 26% in the 12 months ending August 2019, the case for gold remains compelling.
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