The World Gold Council has encouraged investors to consider gold as a valuable component in an investment portfolio.
It comes as the council announced that the price of gold is up, amid record low volatility and against analysts’ forecasts, the World Gold Council has said.
In its six-page investment report, the body has shown that the gold price is up 3.4 per cent in the year-to-date, and has been above its 2013-end price for all but two days this year, defying predictions from analysts who had generally expected lower prices.
The report stated: “In our view, investors should view gold as a valuable portfolio component today. Positive economic growth is supportive of gold’s long-term demand and rising interest rates do not necessarily push gold prices down.”
The council also said that gold’s cost-effectiveness has made it an attractive portfolio hedge compared to other strategies, and that constraints in mine production and falling gold recycling have kept the market in balance.
Gold is seen as a valuable hedge against market risk, yet can also benefit from GDP growth.
The report added: “The relationship between GDP growth and gold is present not only in emerging economies. In the US, a 1 per cent increase in real GDP lifts jewellery demand by 2.3 per cent, all else being equal. This is certainly not negotiable, given that consumer demand in the US makes up to 50 per cent of its yearly gold demand, even when gold-backed ETF demand is included.”
The body’s analysis has shown that in a moderate-rate environment, nominal returns for gold have been even slightly higher than gold’s long-term average of 6 per cent to 7 per cent.
“However gold’s volatility has fallen and has stayed significantly lower than that of equities. In addition gold’s low correlation to global equities, one of its key diversification attributes, has remained close to zero,” according to the report.
The council contended that gold could replace bonds as a balance for equity risk, and the gold market is structurally robust to support its long-term growth.
This came as inflows into physical gold exchange-traded funds reached six-week highs, data from ETF Securities has found. Over the week 19 to 26 October alone, there were US$22.6m (£14.0m) of inflows into physical gold as the price of the metal fell a further 0.4 per cent.
According to Nitesh Shah, associate director of research at ETF Securities, with gold trading just above the firm’s estimated marginal cost of production, a ‘natural floor’ to the metal appears to have been reached.
He said: “With many commodities trading so close to their marginal cost of production, we believe that prices cannot fall much lower without triggering a supply response.”
Adviser View
Earlier this year, Philip Milton, director of Devon-based Philip Milton Investment Consultants, warned that gold could be a worry for investors, given that “gold tried to rally in 2014, but that may be short-lived”.
He said: “There is good gain, poor gain and simple loss. Making a loss when others around you are making a gain demonstrates how expensive the gap can be when making the wrong decision. More often than not, doing the opposite to the crowd can be wise.”
