26 Jan

Why gold outperformed other assets recently

WRITTEN BY Russ Koesterich, CFA FEATURED IN Macroeconomic Analysis

Gold is benefiting from today’s low interest rate monetary climate, and Russ says its diversifying effects mean the metal can be a valuable risk management tool for investors.

I’am advocating gold as a long-term investment and also as a risk management tool. Today, I remain bullish on the metal for two reasons – the monetary climate and gold’s diversifying qualities.

Gold is up nearly 8% this month, outperforming most equity indexes. Gold – more than any other commodity – is a natural beneficiary of the current monetary regime, which is characterized by negative real interest rates.

Why gold outperformed other assets recently

Market Realist –

Gold outperformed other assets as investors fear another bout of global slowdown

The above graph compares the performance of spot gold (GLD)(IAU) with the S&P 500 (SPY)(IVV) for the month so far. The S&P 500 has lost close to 2% since the start of the year, whereas gold has returned about 8% to its investors in the same period.

Gold outperformed most global equities (QWLD) as fears of a global slowdown spooked investors. Most developed markets (EFA), with the exception of the United States, are seeing slow growth, especially Europe (EZU).

In addition, political instability in Greece has added to Europe’s woes. This has led to high volatility (VXX) in most markets. Remember, although the US economy is witnessing growth, the stock markets are affected by the goings-on elsewhere since a global slowdown is bad news for exports.

These fears have led to a scramble toward safe havens such as gold and Treasuries (TLT). The ten-year U.S. Treasury is trading well below the 2% mark, close to 1.8%. Recently, treasuries all around the developed world saw their yields battered as investors looked for shelter from risky assets.

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