Gold Investor - SPDR Gold Shares

ConclusionGold should form an integral part of a central bank’s foreignreserveportfolio, especially in emerging markets. The optimalallocation to gold is consistently higher when considered froma domestic-currency perspective, with a resulting mid-riskoptimal allocation to gold of between 8.4% and 10% (comparedwith 4.6% to 7% in dollar terms). Additionally, including goldin the investment universe improved risk-adjusted returns forall nine emerging-market currency optimisations. Our analysispoints to gold’s consistent volatility across currencies, especiallyrelative to that of other reserve assets, like sovereign debt.When comparing gold to these other reserve assets, reservemanagers will already be aware of gold’s liquidity and lack ofcredit risk, but may also benefit from conducting an analysisto complement their US-dollar-based strategies. We haveshown that analysing a reserve portfolio from the perspectiveof emerging-market currencies can provide useful informationto portfolio managers on the optimal composition of foreignreserves. In particular, we found that gold’s optimal allocation,when seen from a domestic-currency perspective, is higherthan suggested by a US-dollar analysis. As central banksre-allocate to reflect these optimal allocations in an environmentof rising reserves, their gold purchases need to increase tokeep pace.Gold Investor | Risk management and capital preservation