Gold a hedge against currency debasement
As more meetings get underway in regard to how the Euro can be saved, as more government debt is issued and as China faces an economic slowdown, we suspect more investors will begin to look for ways to diversify their investments. This week the World Gold Council has released a report which may help these concerned investors.
The report, entitled Gold as a strategic asset for European investors was released earlier this week. It finds the use of gold as a strategic asset likely to continue to grow due to its “unique properties which can protect investors” portfolios from the corrosive effects of stagnation, negative real returns, high inflation and fiat currency debasement, in particular context of the Euro area.
The research, undertaken by New Frontier Advisors, found the presence of gold in a Euro-based portfolio to add “useful and likely significant diversification benefits,” thereby improving performance.
The report quotes the 2006 study by Michaud et al which found “gold could be a statistically significant contributor to the diversification of an optimised institutional strategic asset allocation”. Using this and other past research they found gold “adds significant diversifying power due to its low or negative correlation with most other assets in an investment portfolio”.
This latest research ties in with the WGC’s previous report which found central banks are now net-buyers of gold. It also found that growing numbers of investors in Germany are now buying gold bullion, which shows that the relevance of gold as a strategic asset is increasing.
At The Real Asset Co we suspect we will continue to see more investors and central banks take heed of the WGC’s research and less of that of governments. As we state often on these pages; gold is a proven store of value and acts a safe haven during times of financial and political turmoil.
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