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The Sunday Paper – Is Gold a Hedge or Safe Haven Asset during COVID–19 Crisis?

I settled the gold (to hold or not) argument some time ago and the answer is simple. As with any other financial asset the decision should be based on your circumstances.

For me therefore I don’t think it’s appropriate; but for you? It might be. As the paper highlighted today notes in a quote from the World Gold Council [Surely a partisan? Ed.] it is “the simplest investment for complex times” and that’s a neat summary for a lot of personal investors.

However, professional investors need to know what kind of correlation its exhibiting with regard to other assets to know whether or not they can optimize portfolios by its inclusion. Md Akhtaruzzaman (et. al.) have looked at the performance since December 31st 2019 to April 24th 2020 to see what could be learned in this regard.

They divide the period into a Phase I (Dec. 31st 2019 ~ Mar. 16th 2010) and a Phase II (Mar. 17th 2020 ~ Apr. 24th 2020) to represent markets before governments stepped in with stimulus/calming/supportive cash infusions, and after.

The researchers discovered in Phase I gold worked well as a non-correlated asset but in Phase II it moved in line with other financial assets and so it’s value as a hedge decreased.

Put simply if you could have traded gold with 20-20 hindsight this year you should have owned it going into the crisis but switched to stocks when governments turned on their respective money pumps.

The study only covers a relatively short time period but unlike many uses hourly data as a way to paint a clearer picture of this busy period. As the paper points out much trading is now governed by algorithms operating on even shorter time periods so expect to see more of this highly-granular research in future.

For many the simplest analysis will suffice about gold’s merit in a time of crisis i.e. what was the price on December 31st 2019 and what was it as of last Friday (July 10th)? The answers are U$1,520 and U$1,799; an improvement over the period of 18+%. ‘Nuff said I think?

You can access the paper in full via the following link Is Gold a Safe Haven?

Happy Sunday.

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