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31 March, 2023
Long-term returns, liquidity and effective diversification all benefit overall portfolio performance. In combination, they suggest that the addition of gold can materially enhance a portfolio’s risk-adjusted returns.
Our analysis of investment performance over the past 3, 5, 10 and 20 years emphasises gold’s positive impact on an institutional portfolio (Chart 11).
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* as of 31 December 2022
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* as of 31 December 2022
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* as of 31 December 2022
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* as of 31 December 2022
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* as of 31 December 2022
Asset allocation: 50% stocks, 40% fixed income, 10% alternatives
Sources: World Gold Council; Disclaimer
* As of 31 December 2022
It shows that an average USD portfolio would have achieved higher risk-adjusted returns and lower drawdowns if 2.5%, 5%, 7.5% or 10% were allocated to gold (Chart 12 and Table 1).
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on US dollar performance between 31 December 2002 and 31 December 2022
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on GBP performance between 31 December 2002 and 31 December 2022
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on EUR performance between 31 December 2002 and 31 December 2022
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on JPY performance between 31 December 2002 and 31 December 2022
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on AUD performance between 31 December 2002 and 31 December 2022
Performance of a hypothetical portfolio with and without gold*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* Based on CNY performance between 31 December 2007 and 31 December 2022
Comparison of an average hypothetical USD portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on US-dollar returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | 2.3% | 2.5% | 3.7% | 3.9% | 5.3% | 5.1% | 6.8% | 6.9% |
| Annualised volatility | 13.2% | 12.7% | 11.3% | 10.9% | 9.0% | 8.7% | 9.7% | 9.5% |
| Risk-adjusted return | 17.3% | 20.0% | 33.0% | 36.4% | 58.6% | 58.9% | 69.4% | 73.0% |
| Maxiumum drawdown | -19.9% | -19.3% | -19.9% | -19.3% | -19.9% | -19.3% | -35.3% | -33.0% |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Comparison of an average hypothetical GBP portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on GBP returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | 2.4% | 2.8% | 3.9% | 4.3% | 7.1% | 7.0% | 7.6% | 7.8% |
| Annualised volatility | 11.1% | 10.4% | 9.6% | 9.0% | 8.4% | 8.1% | 8.7% | 8.4% |
| Reward to risk | 21.5% | 26.9% | 40.8% | 47.0% | 84.9% | 86.5% | 87.3% | 92.7% |
| Maxiumum drawdown | -13.8% | -12.6% | -13.8% | -12.6% | -13.8% | -12.6% | -21.2% | -18.2% |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Comparison of an average hypothetical EUR portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on EUR returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | 2.0% | 2.4% | 4.2% | 4.5% | 6.4% | 6.3% | 6.4% | 6.6% |
| Annualised volatility | 12.3% | 11.6% | 10.5% | 10.0% | 8.7% | 8.3% | 8.5% | 8.1% |
| Reward to risk | 16.3% | 20.6% | 39.8% | 45.5% | 73.4% | 75.8% | 75.3% | 81.1% |
| Maxiumum drawdown | -14.1% | -13.3% | -14.1% | -13.3% | -14.1% | -13.3% | -30.8% | -28.1% |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Comparison of an average hypothetical JPY portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on JPY returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | 6.57% | 6.97% | 5.36% | 5.68% | 7.69% | 7.64% | 6.17% | 6.38% |
| Annualised volatility | 11.58% | 11.05% | 10.58% | 10.12% | 9.40% | 9.02% | 10.46% | 10.17% |
| Reward to risk | 56.71% | 63.10% | 50.71% | 56.15% | 81.86% | 84.72% | 59.00% | 62.75% |
| Maxiumum drawdown | -13.50% | -12.57% | -13.50% | -12.57% | -13.50% | -12.57% | -39.61% | -37.86% |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Comparison of an average hypothetical AUD portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on AUD returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | 2.64% | 2.97% | 5.41% | 5.72% | 8.42% | 8.33% | 6.29% | 6.43% |
| Annualised volatility | 8.18% | 7.59% | 7.29% | 6.79% | 6.67% | 6.36% | 6.57% | 6.26% |
| Reward to risk | 32.32% | 39.11% | 74.18% | 84.16% | 126.15% | 131.00% | 95.68% | 102.71% |
| Maxiumum drawdown | -11.52% | -10.75% | -11.52% | -10.75% | -11.52% | -10.75% | -18.66% | -15.50% |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Comparison of an average hypothetical CNY portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on CNY returns*
| 3-year | 5-year | 10-year | 20-year | |||||
| No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | No gold | 5% gold | |
| Annualised return | -0.01301 | -0.00878 | 0.010499 | 0.014662 | 0.036519 | 0.036333 | 0.022263 | 0.024393 |
| Annualised volatility | 0.104498 | 0.100339 | 0.09455 | 0.090421 | 0.090466 | 0.086954 | 0.115821 | 0.111459 |
| Reward to risk | -0.12446 | -0.08754 | 0.111039 | 0.162158 | 0.403673 | 0.417837 | 0.192219 | 0.218852 |
| Maxiumum drawdown | -0.23133 | -0.21794 | -0.23133 | -0.21794 | -0.23133 | -0.21794 | -0.34744 | -0.33005 |
*As of 31 December 2022
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
In addition to a traditional historical simulation, a mean variance optimisation analysis suggests that an allocation to gold may result in a material enhancement to portfolio risk-adjusted returns by shifting the efficient frontier upwards. For example, a portfolio with gold could deliver higher return for the same level of risk, or the same return for a lower level of risk (Chart 13).
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Efficient frontier of a hypothetical average portfolio
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
The ‘optimal’ amount of gold varies according to individual asset allocation decisions. Broadly speaking, the analysis suggests that the higher the risk in the portfolio – whether in terms of volatility or concentration of assets – the larger the required allocation to gold, within the range in consideration, to offset that risk (Chart 14)
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
* As of 31 December 2022
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