Gold is often characterised as a store of value (primarily against inflation) as well as an investment portfolio hedge against a range of other portfolio risks such as general financial market instability, geopolitical tensions, and currency weakness.
Gold tends to have a low, and at times, negative correlation to other asset classes, particularly in times of acute stress or in macroeconomic environments that are unfriendly to more traditional financial assets e.g. high inflation regimes.
Gold’s low or negative correlation is potentially attractive from a diversification standpoint, helping to dampen overall portfolio volatility. Therefore, gold can potentially complement other portfolio hedges such as high-grade fixed interest.
Gold is a higher volatility asset class, so we place it within the alternatives segment of diversified multi-asset portfolios. Physical gold holdings can, of course, be complemented or even replaced with an allocation to gold equities. Our current position in gold is fairly moderate. We have a 2% allocation in our multi-asset balanced fund and a 3% gold stock allocation within our Australia equity portfolio.
At present, we believe gold holds a degree of appeal in a portfolio context as cash and fixed interest offer very low yields. While our base case is that inflation ebbs on a 12-month view, we see a somewhat asymmetric risk profile for inflation, particularly relative to current market pricing in fixed interest markets. So, we think a moderate gold allocation is currently reasonable given the prevailing backdrop of very low interest rates, elevated equity markets and asymmetric inflation risk. In this week’s report we:
- Examine the drivers of the gold price
- Look at physical gold as more of a hedge than an “investment”
- Outline our allocation split to physical gold and gold equities
- Share our view on whether cryptocurrencies are the new gold
About Wilsons Advisory: Wilsons Advisory is a financial advisory firm focused on delivering strategic and investment advice for people with ambition – whether they be a private investor, corporate, fund manager or global institution. Its client-first, whole of firm approach allows Wilsons Advisory to partner with clients for the long-term and provide the wide range of financial and advisory services they may require throughout their financial future. Wilsons Advisory is staff-owned and has offices across Australia.
Disclaimer: This communication has been prepared by Wilsons Advisory and Stockbroking Limited (ACN 010 529 665; AFSL 238375) and/or Wilsons Corporate Finance Limited (ACN 057 547 323; AFSL 238383) (collectively “Wilsons Advisory”). It is being supplied to you solely for your information and no action should be taken on the basis of or in reliance on this communication. To the extent that any information prepared by Wilsons Advisory contains a financial product advice, it is general advice only and has been prepared by Wilsons Advisory without reference to your objectives, financial situation or needs. You should consider the appropriateness of the advice in light of your own objectives, financial situation and needs before following or relying on the advice. You should also obtain a copy of, and consider, any relevant disclosure document before making any decision to acquire or dispose of a financial product. Wilsons Advisory's Financial Services Guide is available at wilsonsadvisory.com.au/disclosures.
All investments carry risk. Different investment strategies can carry different levels of risk, depending on the assets that make up that strategy. The value of investments and the level of returns will vary. Future returns may differ from past returns and past performance is not a reliable guide to future performance. On that basis, any advice should not be relied on to make any investment decisions without first consulting with your financial adviser. If you do not currently have an adviser, please contact us and we would be happy to connect you with a Wilsons Advisory representative.
To the extent that any specific documents or products are referred to, please also ensure that you obtain the relevant disclosure documents such as Product Disclosure Statement(s), Prospectus(es) and Investment Program(s) before considering any related investments.
Wilsons Advisory and their associates may have received and may continue to receive fees from any company or companies referred to in this communication (the “Companies”) in relation to corporate advisory, underwriting or other professional investment services. Please see relevant Wilsons Advisory disclosures at www.wilsonsadvisory.com.au/disclosures.
Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.