What Makes Gold a Strategic Asset?

If you're looking for a reliable and diverse asset to add to your portfolio, gold could be just what you need. With its proven track record of preserving value over time, it has long been recognised as a strategic long-term mainstay in any well-diversified portfolios.

But gold is more than just a shiny commodity – it boasts a range of unique features. Highly liquid. Carries no credit risk. Historically held value owing to scarcity, even during times of economic uncertainty.

When combined, these attributes mean gold can enhance your portfolio in three key ways:


1. A Long-Term Source of Return

Gold is a diverse and resilient asset that has historically provided positive long-term returns in various market conditions. Its unique combination of portfolio and consumer demand makes it counter-cyclical, with the ability to perform well during periods of economic uncertainty and expansion. In fact, looking back over half a century, the price of gold has increased by nearly 8% per year since 1971, with a long-term return comparable to equities and higher than bonds. Furthermore, gold has outperformed many other major asset classes over the past 3, 5, 10, and 20 years. As a hedge against inflation, gold has also outpaced the US and world consumer price indices (CPI).


2. Diversification That Works

Finding effective diversifiers can be challenging, as many assets become increasingly correlated during times of market uncertainty and volatility. However, gold stands out from the crowd. Its negative correlation to equities and other risk assets increases as these assets sell off, making it a reliable portfolio diversifier. This was evident during the Global Financial Crisis, when equities, hedge funds, real estate, and most commodities tumbled in value, but gold held its own and increased in price, rising 21% in US dollars from December 2007 to February 2009. Even in the recent sharp equity market pullbacks of 2020 and 2022, gold's performance remained positive, solidifying its status as a dependable diversifier.


3. A Deep and Liquid Asset

The gold market is not only large and global, but also highly liquid, with an average daily trading volume of around US$132 billion in 2022 - surpassing several major financial markets. What's more impressive, is that gold's liquidity remains robust even during times of financial turmoil, unlike many other financial assets. This is particularly important for investors, as gold can serve as a source of liquidity to meet liabilities when less liquid assets in their portfolio are hard to sell or priced inaccurately.


Final Thoughts...

Gold's status as a safe-haven asset during times of economic turmoil is well-established. However, its unique characteristics as a luxury good and investment asset make it a valuable addition to any well-diversified portfolio. Gold's dual appeal is likely to endure, making it a versatile and effective tool for those seeking stability and long-term returns.

So, whether you're a seasoned buyer or just starting out, speak to Rosland today and discover how you can make gold a strategic and tangible addition to your portfolio.