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(December-2002) Gold glitters when spreading investment risk
Super funds seeking portfolio diversity may consider gold bullion as a means of spreading investment risk, according to a report by PricewaterhouseCoopers (PwC).
The report states that gold bullion can reduce the volatility of investment returns as measured by the standard deviation of monthly returns.
However, the study also highlights that if gold bullion had been introduced into a portfolio between 1992 and 1997, it would have had a markedly different in impact than had it been introduced between 1997 and 2002.
“In the earlier period it would have reduced the return by about 0.1 to 0.2 per cent per annum for each 1 per cent of gold bullion investment. However, for 1997-2002, the introduction of gold would have had virtually no impact on the return,” the report’s author David Knox says.
According to the study, a return from gold bullion of 6.5 per cent a year is needed to give a portfolio that includes a five per cent gold allocation a preferred risk-return position when compared to the performance of other typical investment portfolios.
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