Gold: portfolio stabiliser even in 2022?

Over the years, several studies have affirmed the calming effect of gold on portfolio volatility and its tendency to increase risk-adjusted return as a 5 to 10 per cent addition to the volume of investors’ portfolios. Has this general rule remained true in 2022, a year of extremes? A year with the highest inflation and the greatest interest rate hikes in decades across many countries, the highest US dollar level in 20 years, and a war in the middle of Europe that most would have thought impossible?

Regionally different contributions to portfolio performance

A recent study by Incrementum AG compares the performances of gold with those of equity indices in seven countries this year (from 1 January to 8 September 2022) – with significantly diverging results. In the US, where the extremely strong dollar and key interest rate hikes of up to 3.5 per cent are holding back gold, the precious metal lost some 6.6 per cent in value in 2022. Over the same period, however, the US stock market recorded a drop by almost 16 per cent. Canada saw a similar, albeit less extreme development with the gold price at -3.2 per cent and a simultaneous stock index decline of 8.2 per cent.

Gold thus far most effective in stabilizing investor portfolios in Japan and Germany

In Germany, gold gained 6.5 per cent. Its investors were thus able to partially offset the losses of the German benchmark index DAX® of 18.8 per cent. In Japan, the gold price is up 17 per cent since the beginning of the year, more than compensating for the relatively limited losses of 1.8 per cent on the stock market. In China, on the other hand, the leading stock index is down 18.3 per cent, while the gold price increased by only 0.5 per cent. In conclusion, the study shows that over the year, gold has performed significantly better than the respective regional stock index. It thus contributed to investors’ portfolio stability – though to a wildly varying extent.

.