Gold During Times of Turmoil

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
Posted Oct 13, 2011

How does gold perform during times of turmoil?

Jason Toussaint from the World Gold Council (WGC) provided some interesting perspective during our recent Case for Investing in Gold webcast that sheds some light on this question. The WGC looked back at six incidences of market turmoil over the past few decades:

• Black Monday (1987)

• Long-Term Capital Management (LTCM) Crisis (1998)

• Dot-com Bubble (2000)

• 9/11 Terrorist Attacks (2001)

• Slowdown (2002)

• Great Recession (2008)

The WGC calculated two $100 million portfolios. One portfolio held approximately 55 percent equities, 40 percent fixed income and 5 percent alternative assets. The second portfolio reduced the equity allocation by 6 percent and added gold. Here is a chart of the results.

In five out of the six periods during market turmoil, an allocation to gold preserved wealth by reducing the hit taken by the portfolio. On average, the portfolios with an allocation to gold were about 7 percent more buoyant. Only during the Dot-com Bubble did gold in a portfolio hurt its performance.

These dramatic events happen infrequently. However, Toussaint suggests investors consider this mantra when constructing their portfolios: “It’s best to prepare for the worst and hope for the best.”

Listen to the Full Presentation

Frank Holmes

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Diversification does not protect an investor from market risks and does not assure a profit. Past performance does not guarantee future results.

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