• 2 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 4 hours Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 6 hours Oil Production Cuts Taking A Toll On Russia’s Economy
  • 8 hours Aramco In Talks With Chinese Petrochemical Producers
  • 9 hours Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 10 hours Maduro Names Chavez’ Cousin As Citgo Boss
  • 17 hours Bidding Action Heats Up In UK’s Continental Shelf
  • 22 hours Keystone Pipeline Restart Still Unknown
  • 1 day UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 1 day Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 1 day Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 1 day German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 1 day Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 1 day Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 2 days Oil Prices Rise After API Reports Major Crude Draw
  • 2 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 2 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 2 days Statoil Looks To Lighter Oil To Boost Profitability
  • 2 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 2 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 2 days Whitefish Energy Suspends Work In Puerto Rico
  • 2 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 3 days Thanksgiving Gas Prices At 3-Year High
  • 3 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 3 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 3 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 3 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 3 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 3 days ConocoPhillips Sets Price Ceiling For New Projects
  • 6 days Shell Oil Trading Head Steps Down After 29 Years
  • 6 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 6 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 6 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 6 days Venezuela Officially In Default
  • 6 days Iran Prepares To Export LNG To Boost Trade Relations
  • 6 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 7 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 7 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 7 days Rosneft Announces Completion Of World’s Longest Well
  • 7 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
Alt Text

Did These Mining Giants Just Confirm The Next Gold Frontier?

After Ecuador’s President removed a…

Alt Text

Expect Mine Closures In This Key Gold Mining Nation

Major gold mining nation South…

Alt Text

Can Mali Maintain Its Gold Mining Status?

Mali could be about to…

Ronald Stoeferle

Ronald Stoeferle

Ronald is a metals analyst at Erste Group. Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4…

More Info

Gold is the Optimal Portfolio Insurance

Gold is the Optimal Portfolio Insurance

While a popular opinion contends that gold is volatile and thus risky, facts clearly prove the opposite. A look at the past few months as well as the long-term history shows that gold is substantially less volatile than shares (e.g. the MSCI World index) or commodities (oil, silver, copper). A study by the World Gold Council confirms this. In the past 20 years, volatility was significantly below that of oil, other precious metals, the GSCI commodity index, and most of the equity indices. Only the shares of junior explorers with low market capitalisations can be deemed “highly speculative”.

Volatility over 10 and 2 years

Volatility over 10 and 2 years
Sources: Bloomberg, Datastream, Erste Group Research

Precious metals have a low correlation with equities. The correlation efficient of gold (weekly correlation, 3 years) with the MSCI is -0.18. It is -0.17 with the DAX, and is practically uncorrelated with bond indices. Since 1990, the correlation of gold with the S&P 500 has been -0.15.

The traditional correlations have recently changed a lot. The correlation with the euro, which used to be 0.52 on a 12M basis, turned around to -0.187 in May. The correlation of the US dollar and gold during the same period was 0.042, whereas the 12M figure was -0.54. The correlation with the commodity sector has fallen as well; for example from 0.48 on a 12M basis to practically zero in May with the VRB commodity index. This suggests that gold has de-coupled from commodities and the leading world currencies, and it could mean that the monetary relevance of gold has increased and that gold is now traded like a currency again.

The following chart shows the 5Y correlation coefficients of the weekly performances with other commodities, equities, and commodity indices.

Correlation gold vs. other asset classes

Correlation gold vs. other asset classes
Sources: Bloomberg, Erste Group Research

The following graph highlights the fact that gold is an outstanding “event hedge”. In 20% of the weakest days of the S&P 500, precious metals and especially gold have clearly outperformed the other asset classes.

Performance on 20% of the weakest days of the S&P 500 index:

Performance on 20% of the weakest days of the S&P 500 index
Sources: ETF Securities, Bloomberg, Erste Group Research

Many studies show that gold, as part of the portfolio, reduces overall risk and improves portfolio performance. Especially in phases of high volatility, gold reduces the fluctuations. On top of that, gold and economic data show no statistically significant correlation with each other. This is probably due to the fact that gold contains no liquidity risk, is exposed to a lower market risk, and has no credit risk. Gold is not linked to any form of liability or promise – as opposed to shares or bonds. We therefore highly recommend gold for diversification purposes.

By. Ronald Stoeferle of Erste Group

Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4 million clients in 3,200 branches in 8 countries (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia, Serbia, Ukraine). As of 31 December 2010 Erste Group has reached EUR 205.9 billion in total assets, a net profit of EUR 1,015.4 million and cost-income-ratio of 48.9%.




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News