Gold, a strategic asset-US edition 2021

WGC published the report 2021 

Recently the World Gold Council (WGC) published the report, the relevance of gold as a strategic asset, US edition- 2021. The report focuses on the key question for investor, what makes gold a strategic asset? And reports, Gold benefits from diverse sources of demand: as an investment, a reserve asset, jewellery, and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time. 

Extraordinary times with extraordinary opportunities: 2020 posed unprecedented challenges to investors as the first global pandemic in a century ravaged the world economically and socially. Covid-19 significantly increased uncertainty by compounding existing risks and creating new ones. The rollout of new vaccines at the end of last year fuelled optimism that the worst was over. 

Yet the pandemic and the ensuing policy response from governments will likely have unintended consequences for, and create structural changes to, asset allocation strategies. 

Global central banks have effectively taken interest rates to zero, driving nearly all sovereign debt to negative real yields. With less opportunity for yield across fixed income assets – especially those of shorter duration or higher quality – investors will likely continue to shift exposure to riskier assets. 

This has pushed many global stock markets to extreme levels on numerous valuation metrics and – importantly - has also served to increase the risk profile of most investment portfolios. 

Additionally, many countries have made it clear they will continue to enact sizeable fiscal policy measures to tackle the economic impact of COVID-19, along with expanding budget deficits and balance sheets. WGC said in the report that, “We believe these actions - in combination with the current environment have made gold increasingly relevant as a strategic asset. 

Not only could investors benefit from gold’s role as a diversifier amid ballooning budget deficits, inflationary pressures, and potential market corrections from already high equity valuations, but they may also see additional support as gold consumption will likely benefit from the nascent economic recovery, especially in emerging markets.”  

The report also focuses on, ESG considerations, the increased relevance of gold, Diversification that works. Also highlights a source of returns that Outperforming fiat currencies as a Gold’s strategic role!

The report concludes by reporting, Perceptions of gold have changed substantially over the past two decades, reflecting increased wealth in the East and a growing worldwide appreciation of gold’s role within an institutional investment portfolio. 

Gold’s unique attributes as a scarce, highly liquid, and un-correlated asset demonstrate that it can act as a diversifier over the long term.

Gold’s position as an investment and a luxury good has allowed it to deliver average returns of nearly 11% over the past 50 years, comparable to equities and more than bonds and commodities.  

Gold’s traditional role as a safe-haven asset means it comes into its own during times of high risk. But gold’s dual appeal as an investment and a consumer good means it can generate positive returns in good times too. This dynamic is likely to continue, reflecting ongoing political and economic uncertainty, persistently low interest rates and economic concerns surrounding equity and bond markets. 

Overall, extensive analysis suggests that adding between 2% and 10% of gold to a US-dollar-based portfolio can make a tangible improvement to performance and boost risk-adjusted returns on a sustainable, long-term basis.