Should gold be included in institutional investment portfolios?

Ole Emmrich · Francis Joseph McGroarty

58 citations0/0 files storedApplied Financial Economics

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

After many years in the investment wilderness, gold investing has come back into fashion. We explore whether including gold does indeed improve institutional investment portfolios and which form of gold performs best. We do this by updating and extending Jaffe (1989), who found clear evidence in favour of including a small allocation to gold. We show that data from the 1980s and 1990s would have suggested avoiding gold investing completely. However, data from the 2000s once again provides evidence for including some gold in investment portfolios. Our analysis shows that the case for gold investing has become especially strong since the financial crisis in 2007. We attribute this shift primarily to changes in inflation expectations. We find that gold bullion almost always produces better portfolio risk-adjusted returns than alternative forms of gold investment.

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References

2002No Contagion, Only Interdependence: Measuring Stock Market Comovements 2010Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold 2010Is gold a safe haven? International evidence 2002Has the Business Cycle Changed and Why?2006Facts and Fantasies about Commodity Futures 2000Contagion: Understanding How It Spreads 2005Gold as a hedge against the dollar 2006Do Precious Metals Shine? An Investment Perspective

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