Gold is a Strategic Monetary Asset held by Central Banks around the world. It is in high demand in its physical form, and offers excellent liquidity.
Gold may play a role in a portfolio to mitigate risk
- Major losses across a portfolio may occur as we have seen in 2008, if all portfolio assets are dependent on specific systems such as stock markets or banking systems, to remain functional and liquid. Recent events have shown that even portfolios which are diversified across financial products can suffer heavy losses if systemic issues arise, if appropriate steps are not taken to protect the entire portfolio of assets.
Risk Mitigation Areas
- Systemic Risk
- Sovereign Risk
- Bank Failures
- Currency Risk (Inflation, Deflation, Hyperinflation, Collapse)
- Bond Market Risk
- Equities Markets Collapse
- Stabilization of markets caused by failing institutions and western nation debt has required unprecedented Quantitative Easing by Central Banks globally. This has led to increased volatility, and an almost addict like reliance on continued stimulation by the markets.
- Volatility in the global financial system has prompted Central Banks to reverse a two decade policy of reducing the size of foreign reserves held in gold. Central Banks have now switched from a two decade trend in selling gold as foreign reserves and become net buyers.
- Gold is more commonly viewed as a “Strategic Monetary Asset” as well as a legitimate foreign exchange portfolio asset by Central Banks, and the one safe haven against Quantitative Easing by the global financial markets.