Diversified 60/40 Portfolio with and without Exposure to Gold
Based on performance between 1/2007-12/2016. The 60/40 portfolio includes a 60%
allocation to stocks (40% Russell 3000, 20% MSCI ACWI ex US) and a 40% allocation
to fixed income (35% Barclays US Aggregate, 5% short-term Treasuries). The allocation
to gold comes from proportionally reducing the benchmark portfolio allocation to stocks
Is It Gold’s Time to Shine?
In an era of economic and political uncer- tainty, interest in holding gold may be returning.
The continued extraordinary monetary
policy by the European Central Bank and
Bank of Japan means questions about global
growth still linger, and new concerns about
changes in political leadership in the US, UK
and Europe are making gold attractive again.
The precious metal is considered a safe-haven asset, one of the few markets along
with US Treasuries and cash that investors
turn to when they become risk adverse. It’s
also an asset that remains relatively inexpensive in the face of record-high equity prices
and spiking bond yields, another plus for the
Gold is well off the all-time nominal
high price set in September 2011 of just
over $1,900 an ounce. The rally was fueled
by worries over expanding central-bank
balance sheets, culminating with a stand-off
between President Barack Obama and
Congressional Republicans about lifting
the US debt ceiling. As of early March, gold
traded around $1,230 an ounce, a good $130
off the low set in December 2015, when the
Federal Reserve raised interest rates for the
first time in several years.
Matthew Michael, emerging market
debt and commodities product director at
Schroders, said it’s seeing renewed interest in
“We have started to see a return of good
performances, so naturally people are asking
questions about how do we access the market,
what’s the sensible way to do it,” he said.
Yet some asset owners remain hesitant
Gold’s Role In Portfolios
to buy gold, whether it’s concerns about
market illiquidity or that the metal itself
produces no dividends. But even a small
holding of gold can offer diversification
benefits, industry watchers say.
Gold can perform a few different roles in a
portfolio, usually as a diversifier or a hedge,
said Adrian Day, president of Adrian Day
Asset Management, who has advised asset
owners on using gold.
“It’s very important when people buy
gold or gold assets that they have a very clear
idea in their mind why they’re buying it and
what the purpose is. It helps determine what
form to hold it in, and also it helps determine
when they should sell,” he said.
Most investors understand gold’s role
as an insurance policy to protect portfo-
lios against extreme events. For instance,
in 2008, all markets fell, including gold.
However, by 2008’s end, gold prices rose
about 5%, making it one of the few markets
to end the year positively.
In the current market environment,
gold isn’t tightly correlated with stocks or
bonds, Day said. Even if an asset owner
thinks President Donald Trump will simply
cut taxes and regulations to help businesses,
and the Federal Reserve won’t raise interest
rates much, stocks and bonds remain
“In that long-term view, one would
have to think there’s a high probably the
60/40 5% Gold 5% Gold/
5% long gold long USD
Source: Bloomberg, ICE Benchmark Adminisration, Solactive AG, World Gold Council
STRATEGY + TACTICS