Investors Should Double Gold Allocations Amid Negative Interest Rates
Amid higher market uncertainty, the price of gold is up by 16% year-to-date – in part due to NIRP. History shows that, in periods of low rates gold returns are typically more than double their long-term average.
Investors should consider doubling their gold allocations amid negative interest rates,says World Gold Council(WGC). The world has entered a new and unprecedented phase in monetary policy. Central banks in Europe and Japan have now implemented Negative Interest Rate Policies (NIRP). The long term effects of these policies are unknown, but WGC see discouraging side effects: unstable asset price inflation, swelling balance sheets and currency wars to name a few.
Amid higher market uncertainty, the price of gold is up by 16% year-to-date – in part due to NIRP. History shows that, in periods of low rates gold returns are typically more than double their long-term average.
“Looking forward, government bonds are likely to have limited upside, due to their low-tonegative yields and, in our view, would be less effective than gold in mitigating risk, ensuring portfolio diversification, and helping investors achieve their long-term investment objectives,” says WGC.
Portfolio analysis suggests that gold allocations in a low rate environment should be more than twice their long term average. “We believe that, over the long run, NIRP may result in structurally higher demand for gold from central banks and investors alike.”
WGC says investors, including central bank managers, should assess the implications of holding bonds with negative return expectations on portfolio composition and risk management. WGC analysis shows that:
1. Gold returns in periods of low rates are historically twice as high as their long-run average
2. Investors may benefit from increasing their gold holdings up to 2.5 times,
depending on the asset mix, even under conservative assumptions for gold.
In addition, WGC expect that demand for gold as a portfolio asset may structurally increase, as NIRP:
1. Reduces the opportunity cost of holding gold
2. Limits the pool of assets some investors/managers would invest in
3. Erodes confidence in fiat currencies
4. Further increases uncertainty and market volatility.
source : investing.com
Investors should consider doubling their gold allocations amid negative interest rates,says World Gold Council(WGC). The world has entered a new and unprecedented phase in monetary policy. Central banks in Europe and Japan have now implemented Negative Interest Rate Policies (NIRP). The long term effects of these policies are unknown, but WGC see discouraging side effects: unstable asset price inflation, swelling balance sheets and currency wars to name a few.
Amid higher market uncertainty, the price of gold is up by 16% year-to-date – in part due to NIRP. History shows that, in periods of low rates gold returns are typically more than double their long-term average.
“Looking forward, government bonds are likely to have limited upside, due to their low-tonegative yields and, in our view, would be less effective than gold in mitigating risk, ensuring portfolio diversification, and helping investors achieve their long-term investment objectives,” says WGC.
Portfolio analysis suggests that gold allocations in a low rate environment should be more than twice their long term average. “We believe that, over the long run, NIRP may result in structurally higher demand for gold from central banks and investors alike.”
WGC says investors, including central bank managers, should assess the implications of holding bonds with negative return expectations on portfolio composition and risk management. WGC analysis shows that:
1. Gold returns in periods of low rates are historically twice as high as their long-run average
2. Investors may benefit from increasing their gold holdings up to 2.5 times,
depending on the asset mix, even under conservative assumptions for gold.
In addition, WGC expect that demand for gold as a portfolio asset may structurally increase, as NIRP:
1. Reduces the opportunity cost of holding gold
2. Limits the pool of assets some investors/managers would invest in
3. Erodes confidence in fiat currencies
4. Further increases uncertainty and market volatility.
source : investing.com
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