WGC Highlights Gold's Role as Effective Diversifier Than Bonds

SEATTLE (Scrap Monster): The World Gold Council (WGC), in its latest investment update focuses on possibilities of gold turning out to be a more attractive and effective diversifier than bonds.

According to WGC, the recent shift to easy monetary policy by world central banks has reduced expected bond returns. This, coupled with record stock-to-yield valuations presents an enticing opportunity for gold. As a result, WGC urges investors to re-optimize their portfolio structure by allocating additional 1%-1.5% exposure to gold, by neglecting its historical performance.

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The extremely low or negative yielding bonds could weigh on the overall portfolio performance. The falling bond yields opens doors to diversifiers with higher potential returns such as hedge funds, real estate and private equity. However, all these alternative investment options are accompanied with historically higher volatility. This too supports the strategy to have increased allocation of gold in one’s investment portfolio.

The lack of returns in the form of interest on gold could deter investors from holding it for short-term or medium-term gains. However, in the midst of negative real-yielding debt scenario, gold prices are likely to report huge surge. WGC believes that investors are unlikely to achieve the same bond returns, as seen over the past few decades. In short, a lower rate environment is expected to make gold more effective than bonds in mitigating portfolio risks and boosting portfolio returns.