Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Gold is still the king of commodities when it comes its role as a diversifier and foundation asset in the portfolios of euro-based investors, says the new report “Gold as a strategic asset for European investors,” commissioned by The World Gold Council (WGC).
The value of gold is particularly important, says the study by New Frontier Advisors (“NFA”), at a time of heightened currency and investment risk.
The paper explores gold as a strategic asset across five sets of asset allocation studies, including four using historical data spanning 1986 to 2010, and one using the 1999 to 2010 time frame.
The findings suggests that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to between 4-9% for portfolios split 50/50 between equities and bonds and as high as 10%, for portfolios with the majority of assets in equities.
The main reason why gold adds significant diversifying power is, according to the WGC report, its low or negative correlation with most other assets in an optimized portfolio context.
The WGC concludes that gold’s strategic asset role is likely to continue to grow in a world characterized by sluggish economic performance, poor investment returns, currency wars and high individual and systemic risk.
Read the full WGC report here.
