Investors Urged To Hedge Portfolios With Gold

Gold prices have jumped up by just over 9% and outperform most other assets, according to research by the World Gold Council.

Only US Real Estate Investment Trusts, Indian equities, commodities like grains, nickel and palladium have given a better return in the first half of the year, says the study.

Gold is currently trading at £760 an ounce (US$1,301) compared with a price of £868 ($1,335) a year ago.

During that time, the precious metal has hit a high of £913 ($1,418) an ounce in August 2013 and a low of £727 ($1,198) in January 2014.

“Gold has not performed as predicted,” said a World Gold Council spokesman.

Stable demand

“Demand remains stable, while jewellery sales have risen and central banks are increasing reserves.”

The council argues that low interest rates are encouraging investors to seek better returns from their investments – and alternative assets like gold have been among those to benefit.

The report goes on to list several reasons why investors should consider allocating a share of their portfolio to gold, including:

  • Soaring bond issuance and emerging market debt is heading for a record high this year. In the first six months of 2014, $181 billion of bonds were issued in the US. The figure for 2013 was $336 billion and $329 for 2012. In Europe, bond issuance is on track to exceed last year’s total by around a third.
  • Too many investors with too much cash are chasing too few top quality investments that might trigger market bubbles.

The Bank for International Settlements (BIS) argues low corporate bond yields may reflect low risk of default, but also offer cheap credit for borrowers in distress to refinance, which is likely to be unsustainable when interest rates return to normal.

  • Markets are trading at less than 10% volatility – the lowest since 2007.

Storing value for investors

“The council believes gold is the ideal hedge should one or more of these factors lead to more volatility in the market,” said the spokesman. “Gold is like a battery storing up value for release in times of trouble.”

The council, which is an organisation backed by gold miners and traders to promote the sale of the precious metal, urges investors to hold a portion of their portfolios in gold investments to guard their wealth against possible falls in the value of bonds or stocks and shares.

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