Investment Professionals

Valuing gold in a portfolio

The value of gold is more than its spot price but also how it works in a portfolio. As an asset with multiple drivers determining its price, gold can seem mysterious, but the data suggests its role in client portfolios is clear.

Gold’s investment value

Gold can’t be valued using traditional metrics related to coupon or dividend value. While some institutions have created their own models, it can be more valuable to consider the interaction of gold with other assets in a portfolio.

Gold is included in portfolios for a myriad of reasons – diversification, growth, as a hedge against inflation, and for a volatility safe-haven. These reasons are backed by the data.

The below chart shows the correlation between gold and other asset classes which demonstrates why it is able to perform differently and even offer positive performance in volatile periods.

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Allocating to gold in a portfolio

Gold allocations traditionally spread from 2-10% of a portfolio depending on risk tolerance and market conditions. For many investors, taking a flexible approach may be the answer, dialling up or down allocations based on individual client portfolio needs and market activity.

For example, some financial advice firms, like Stockspot, have used a slightly higher allocation of 12% in recent times.

Using an ETF like ETFS Physical Gold (ASX Code: GOLD) may be a suitable option for many portfolios as it offers a low-cost, liquid and easy to use exposure without the need for physical storage.

Contact us to find out more about GOLD and using it in your portfolio.

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