There is little doubt that across history gold has been considered as the physical embodiment of wealth and status. El Dorado and King Midas were two very famous mythical figures raised by the allure of gold. Throughout history, this yellow metal has created and toppled dynasties over the millennia. For many, Gold has been used as a form of currency for thousands of years and unlike paper or electronic currency, Gold has a finite supply and as a mineral deposit, it is relatively difficult and expensive to extract. As a consequence, gold has been a natural hedge against inflation and has provided investors with an alternative form of currency as paper money has fallen in value. Knowing all of this, what does gold mean for investors and their portfolios?
We did some straight-forward basic comparison analysis, constructing two portfolios. The first allocated equally to equities, bonds, commodities and cash. The second diversified the portfolio by equally allocating to gold. Both strategies were tested from 1993 to date.
Since 1993, we can see that the portfolio that included gold has gained over 160%, whereas the portfolio excluding gold gained 135%. More importantly, it is also clear that the portfolio that held gold also had shallower drawdowns (movement from peak to trough), helping to maintain investment gains.
The importance of the addition of gold to any portfolio, as a diversifier or as ‘portfolio insurance’, is most clearly shown by the correlation of gold against equities. Far too many asset classes, in this insane world of free central bank money printing, have long term positive correlations, ie, both asset classes move up and down in lock step, in varying degrees.
Gold, typically, has more of a negative, or low correlation to equities, especially notable during periods of equity sell-offs. This characteristic is the fundamental basis for demonstrating beyond doubt, the need for any investor or portfolio to include a reasonable weight to gold.
Visit GlintPay’s app and see where you can not only hold physical gold in a secure digital wallet, but also, have the ability to spend it with Glint card at any time.
Download the Glint app and see where you can not only hold physical gold in a secure digital wallet, but also, have the ability to spend it with Glint card at any time.