- Where does it stand in term of valuation?
Gold is trading far below US$1,900/oz peak level reached in September 2011. Gold price is not anywhere close to its prior peak. Potentially there might be more upside potential than downside risk for gold due to the ongoing geopolitical uncertainty, stretched valuations in equity markets and the current low real interest rate environment. Gold has increasingly become an important strategic allocation in an investor portfolio to hedge against unexpected risk. Since 2016, we have seen very strong inflows into SPDR Gold Shares (GLD) and other physically-backed gold ETFs.
Today’s price is just above the midpoint of the trading range.
Chart: Gold Has Traded Within A Range Between US$1,150 And US$1,350 An Ounce Since Q3 2013
- Where does it stand in the multi-assets class environment?
Gold has historically low or negative correlation with many other asset classes. Gold has historically been used by many portfolio managers to counter volatility. It can be if not should be considered as a core diversifying asset. Investors may wish to consider having a long-term strategic presence in multi-asset portfolios. Study has shown that adding a 2% to 10% strategic asset allocation to Gold in a hypothetical multi-asset portfolio would have improved risk-adjusted return and reduced maximum drawdown compared to the portfolio without any exposure to gold-backed investments.
- How does Gold react in Interest Rate hike environment?
Global real interest rates to remain in fairly low in the near term. This would likely benefit gold as an non-yielding asset because a low real interest rate would lower the opportunity cost of holding gold, making it a more attractive investment.
- How does Gold react in low inflation environment?
Gold has a long track record of offering some potential preservation of purchasing power in varying inflationary environments. Historically, it tended to perform well during periods of high and sustained inflation, but it also historically performed well even during periods of low inflation. The disinflationary trend over the past 35-plus years and the low-to-negative real rates around the world that still prevail have historically been favourable to the price of gold.
Please note:
The information contained in this article is for general guidance on matters of interest only. While we made every attempt to ensure that the information contained herein has been obtained from reliable sources, we are not responsible for any errors or omissions, or for the results obtained from the use of this information. Neither the information presented nor any opnion expressed constitues a solication for the purchase or sale of any financial products. As such, before taking any action you should seek advice from an independent professional advisor.
