Can Precious Metals Make Your Portfolio Shine?

Abstract

We extend earlier studies and present new evidence on the benefits of adding precious metals to U.S. equity portfolios. We report five major findings related to the potential benefits of investing in precious metals either directly via the commodity or indirectly via equities. First, we find that adding a 25% allocation to the equities of precious metals firms improves portfolio performance substantially. Second, our evidence indicates that an indirect investment dominates a direct investment in precious metals. Third, relative to platinum and silver, gold has better stand-alone performance and appears to provide a better hedge against the negative effects of inflationary pressures. Fourth, the benefits of precious metals are strongly tied to monetary conditions. Finally, while the benefits of adding precious metals to an investment portfolio varied somewhat over time, they prevailed throughout much of the 34-year period. Overall, our evidence suggests that investors could improve portfolio performance considerably by adding a significant exposure to the equities of precious metals firms. TOPICS:Portfolio management/multi-asset allocation, other real assets, risk management

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