Gold hits record high

Gold has continued its surge as a safe haven investment.

Gold hits $3000

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Why hold gold?

Our fundamental case for holding gold is unchanged since our October 2021 research article.
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1. A portfolio insurance against market shocks
2. An uncorrelated asset for risk-based diversification
   
3. A hedge against inflation

What has put those trends on steroids is heightened geopolitical risk, with Emerging Market Central Banks continuing to diversify their reserves away from traditional bonds and towards physical Gold.

Gold hits $3000

Gold hit a record high this week of $3000/oz as risk aversion spiked with the US equity market correction triggered by Trump’s Tariff Tuesday.
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This means that whilst few equity markets have beaten the S&P 500 over the long-term, the gold market has.  The chart below shows the performance of Gold vs the S&P 500 since January 2000.

Central Banks are buying

Back in 2000 it seemed fashionable under New Labour for the then Chancellor Gordon Brown to sell off the UK’s Gold reserves at an average price of just $275/oz (those of us old enough can remember the armed convoys through the City as they shipped it away).  Unfortunately the assets the Bank of England bought with the proceeds (mainly government bonds) have not held their value either thanks to inflation.
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But Central Banks – particularly in Emerging Markets like China, India and Russia – are buying more Gold since 2021-22.  If some of those countries are treated as military or trade adversaries by the US Government, why would they want to hold their reserves in US Government Bonds?

Why do we recommend advisers to hold Gold in their portfolios

We have consistently recommended our Investment Manager and Financial Adviser clients to include Gold in their portfolios, not as a bet on gold price directionality.  But because of its uncorrelated nature.
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As asset allocators know  - by introducing an uncorrelated asset, a portfolio’s risk can be less than the sum of its parts.  This “true diversification” is known as the only “free lunch” in financial markets.

Gold is more than just a Valentine’s gift – it’s a powerful portfolio diversifier.

Gold as a shock absorber

Gold also consistently and repeatedly acts as a shock absorber in times of market stress (less so in protracted recessions).
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The chart below shows the quarterly returns on Gold during periods of market shock.

About the Elston Gold & Precious Metals Index

In the Elston Gold & Precious Metals Index, we combine strategic allocations to Gold, Silver, Platinum and Palladium to broaden the palette of precious metals exposures.  Furthermore their internally uncorrelated nature also means the volatility of the index is less than that of Gold alone.
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Sources: Elston research, Bloomberg research