With a 9.2% rise in the price of gold, the World Gold Council has issued an extraordinarily positive report on the world’s gold market — along with a strong projection for the remainder of 2014. The report bases its findings on a “current environment of high bond issuance,” narrow credit spreads, and “record low volatility.” These economic conditions portend nothing less than a spectacular return for the yellow metal as an essential catalyst for reducing risk in an investment portfolio.
To appreciate the significance of this report, one needs to understand what the World Gold Council is — and the nature of its professional membership. Its members comprise 20 of the largest, most prestigious mining companies in the world. On their behalf, the Council promotes understanding of gold in the investment, jewelry, and technology sectors — as well as continuing analysis of the global market to aid investors and consumers.
The Council’s knowledge of the global marketplace is profound and always up to date. In a world awash with investment opportunity, its reports are among the best sources to consult for perspective on gold as an investment.
In a strikingly impressive bar chart, the WGC’s current mid-year report makes it clear that gold out-performed “all other assets.” A few assets — grains, nickel, and palladium among commodities, Indian stocks and US REITS — performed better than they had. In fact, prices are up, volatility is now suppressed and, in general, gold “has defied the bearish outlook that many gold analysts trumpeted at the beginning of 2014.”
The World Gold Council’s report makes it clear that gold out-performed all other assets.
The report also points out that, given low interest rates and the lower-quality bonds now available, investors remain vulnerable to risk in their portfolios. Gold, under the circumstances, offers excellent risk protection. In fact, the issuing of lower quality bonds stands to “reach record levels.” The marked increase in collateralized loan obligations has only served to make matters worse.
While gold prices remain up (remarkably for this time of year), “volatility is currently below 11% on a thirty-day rolling basis.” This scenario provides an exquisite opportunity for investors to use gold as a hedge, particularly in light of a much more volatile S & P index. Readers of the WGC report will want to pay especial attention to chart six, which starkly demonstrates that equity volatility and gold prices rise in times of crises. As proof, the chart singles out crises such as Black Monday in 1987, the dot-com bubble of the nineties, 9/11, and the Great Recession.
It’s clear then that gold’s day has dawned once more. Need further proof? Just three days ago it was announced that George Soros, one of the world’s most successful investors, has been loading his portfolio with gold and silver stocks. This is clear from his 13F SEC filings. What Soros is banking on is that, when gold prices rise, mining stocks tend to rise even more.
The Hungarian-American financier is shrewd and prescient. Based on analyses like the one in the WGC report, Soros is willing to take prudent risks now for spectacular returns tomorrow. But you need not share his appetite for risk to appreciate the stabilizing effect that the ownership of physical gold can have on your portfolio.