21st Century Business Herald reporter Tang Jing reported from Beijing
On 30 November, the World Gold Council released a research report entitled "What is "Gold+" and Why "+Gold"". For the first time, the report introduces the concept of "gold+", which is to add a certain proportion of gold to the portfolio to strengthen the portfolio's anti-risk ability and improve risk-adjusted returns.
As an important part of a large class of assets, in addition to the investment value brought by its anti-inflation, benchmarking US dollar and other characteristics, gold has a low correlation with stocks and bonds, so it has the long-term allocation value of reducing portfolio volatility and diversifying portfolio risks.
A study by the World Gold Council showed that the addition of gold to the equity and bond portfolio led to a significant decrease in portfolio volatility and maximum drawdown, while the Sharpe ratio, which measures risk-adjusted returns, increased. Gold has both commodity and currency attributes, and is a scarce combination and decentralized target in the current domestic market, suitable for investors to make long-term allocation.
"In addition, gold is an effective allocation tool to hedge short-term risks in various markets, and it has irreplaceable value to resist 'black swan' risks by allocating gold." Therefore, in the face of the unknown of the complex market, it will be a rational choice to always be in awe and allocate gold assets to hedge risks for a long time. Wang Lixin, CEO of the World Gold Council China, told the 21st Century Business Herald reporter.
It is worth mentioning that gold not only diversifies the risk of the portfolio, but also generates certain returns. In general, gold is regarded as a long-term inflation-resistant zero-coupon bond, which can hedge against the depreciation of paper money caused by currency over-issuance in the long run. Since 2002, international gold has risen from around $320/oz to around $1,780/oz, with an annualized yield of more than 8%. In general, gold has three major attributes of diversifying risks, stabilizing volatility and fighting inflation, and has irreplaceable advantages in mainstream large asset classes.
Wang Lixin said at the report press conference, "More and more institutional investors around the world are adding a certain proportion of gold to their portfolios to strengthen portfolio anti-risk capabilities and improve risk-adjusted returns, which is reflected in the portfolio including central banks, sovereign funds, pensions, fund products and other portfolios around the world, which we call 'gold+'." ”
"Gold+" has become a major trend in asset allocation for global investors
The report shows that since the beginning of this year, most non-dollar currencies in the world have depreciated sharply in the face of an extremely strong dollar, so most of the gold denominated in non-dollar currencies has achieved good gains.
With major global risk assets and currencies falling sharply, gold denominated in local currencies bucked the trend and became one of the few solid performers. Year-to-date, gold in euro terms is up 6%, yen gold is up 15%, pound gold is up 8%, and yuan gold is up 7%, the data showed.
Based on the role of gold in resisting the risk of currency depreciation and diversified asset allocation, more and more investors are focusing on gold again, by increasing gold allocation to hedge risks, and maintaining the balance of asset allocation and the stability of income, "gold +" is gradually becoming a major trend in asset allocation of global investors.
Global central banks have continued to buy gold in recent years. The latest data suggest that global central bank net purchases reached 673t in 2022 at the end of September, marking the 13th consecutive year of net inflows to global central bank holdings and the highest annual net purchases on record.
In addition to central banks, sovereign funds and large institutional investors are also increasing their gold allocation. For example, Japan's Nikko Asset Management has allocated 17% of its gold to a fund with a total size of more than 320 billion yen to protect against currency depreciation. As of the end of November, yen-denominated gold rose 17% against the backdrop of a 21% depreciation of the yen against the dollar, highlighting gold's strategic value in the fund.
Bridgewater China, a wholly foreign-owned private equity firm owned by Bridgewater, the world's largest hedge fund, bought a number of publicly offered gold ETFs in the second quarter of this year, holding a total of 214 million shares as of the end of June this year.
Dalio, then head of Bridgewater Fund, said in an interview that gold should be an important part of the portfolio in an uncertain global environment. In his view, gold is like the "insurance" of a portfolio, a good risk hedge, which can constitute 15% of a diversified portfolio.
Gold has also been concerned by some domestic institutional investors. At present, domestic public FOF, some insurance asset management products and fund products have also begun to focus on gold. For example, the third quarterly report shows that 5.16% of the gold allocation in Changxin's asset allocation FoF portfolio is listed.
In addition, public data shows that if the allocation in the performance benchmark is used as the mapping of the product portfolio, the gold allocation of CMB Wealth Management Zhaozhihong Ruiduo Asset FoF Enterprising Day Kai No. 1 Hybrid Financial Plan, Invesco Great Wall Prudent Pension Target Three-Year Holding Period Hybrid FoF, Bosera Jinfuan One-Year Holding Period Hybrid FoF, Invesco Great Wall Junfeng Balanced Pension Target Three-Year Holding Period Hybrid FoF, and BOC Securities Huize Enterprising 3-month Holding Period Hybrid Gold Allocation may all exceed 5%.
Gold also appears in the domestic insurance asset management portfolio. According to the public information of Chinese Min, it established the industry's first portfolio asset management product that invests in gold in early 2021. The product is based on the premise of obtaining stable income brought by fixed income assets in investment strategy, and strives to obtain the effect of resisting inflation, hedging risks, providing income and liquidity through the allocation of gold assets, and achieving a balanced asset allocation goal.
The risk of recession and stagflation cannot be ignored
The report mentioned that in the future, the possibility of slowing global economic growth and inflation remaining above long-term levels remains. Therefore, recession and stagflation risks are challenges for investors. The World Gold Council's analysis of the performance of mainstream assets in different economic environments since 1970 found that gold tends to outperform in recessions and stagflation.
In October, the International Monetary Fund (IMF) released its World Economic Outlook and Global Financial Stability Report, further downgrading its expectations for the global economic outlook. Geeta Gopinath, first managing director of the IMF, said that there is even a one-in-quarter probability that global economic growth in 2023 will fall below 2%, a record low. Many people will probably feel a recession in 2023, and even major economies such as Germany are likely to start entering recession next year.
Recessions tend to be accompanied by weak performance and high volatility in risky assets, and gold has generally outperformed risk assets in past recession cycles.
Zhu Jianfang, chief economist of CITIC Securities, reviewed the trend of large asset classes during the recession in the United States since the 1970s and found that the median allocation return of gold reached 6% during the recession. Although this gain is not significant relative to the overall inflation level of 4% during recessions, gold not only achieved positive returns but also outperformed inflation the most times relative to other asset classes that tend to adjust sharply during recessions. Better relative returns make gold's allocation value prominent in recessions.
Zhu Jianfang predicted that from the fourth quarter to next year, the US economy may appear to be characterized by "high inflation, gradual recession, dollar peaking, and interest rate shock falling", which is favorable to the left side allocation of gold.
CICC believes that looking forward, the main line of the market may switch from "stagflation trading" to "recession trading", but the timing of the switch is uncertain, and it is recommended to increase the allocation of assets that may perform better in both environments. From a logical point of view, stagflation and recession environments are relatively unfavorable for equity assets but relatively good for gold.
In the view of the CITIC Futures commodity strategy research team, next year, the US economy will only choose between "deepening stagflation" or "entering recession to change monetary policy", either way, it is beneficial to precious metals, and precious metals already have long-term allocation value.
(Coordinator: Ma Chunyuan)
For more information, please download 21 Finance APP