Portfolio Diversification with Gold
Physical Gold, in general, provides valuable diversification benefits and improves portfolio efficiency, even during periods of extended equity bull markets (1972-2016).
Even though gold may not provide the same efficiency benefits over stock-and-bond portfolios in the current 2009-2016 bull run, they remain an effective performance stabilizer through turbulent periods.
Gold should not be expected to outperform equity markets during protracted equity market rallies. Despite the focus on performance alone by many in the industry, Gold aims at volatility reduction, improving diversification within a portfolio and typically deliver superior long-term risk-adjusted return.
Using an asset allocation framework, the empirical evidence demonstrates that investment in Gold would have improved the portfolio efficiency of cash, bonds and equity portfolios, for any risk tolerance level, for the period 1972 - 2016.
“When analyzing efficient allocations, we found that the optimal Gold allocation for a balanced USD portfolio lies between 5 - 20%.
Physical Gold should be looked at as sort of an insurance, you hope you never need.