New Mercer study: gold is a sensible insurance in periods of capital market crisis
Portfolio risks can be reduced by adding gold
Deutsche Börse Commodities: A current Mercer study examines the suitability of gold for hedging a portfolio, particularly against the backdrop of a loss in confidence in the global monetary and economic system. The study primarily looked at gold as an asset class for institutional investors. It defines and analyses three possible scenarios that differ according to the extent of the loss in confidence. The quantitative evaluation shows that an investment in gold represents a sensible diversification for a portfolio of large-cap equities and euro zone government bonds, particularly in times of crisis on the capital market.
The study also takes into account the price of gold, which has come under major pressure recently. When planning an investment, choosing the right time to enter is crucial, it concludes. The total demand for gold dropped in 2012 and 2013 (from 4,589 t in 2011 to 3,756 t in 2013 according to an analysis by the World Gold Council). The price of gold fell accordingly. However, in practice, reports the study, it is difficult or impossible to determine a "fair" price of gold, since the precious metal is sometimes regarded as protection against inflation and other times as a pure commodity, depending on the capital market situation.
Martina Gruber, managing director at Deutsche Börse Commodities GmbH: "The study proves that even a low gold price does not change gold's core function of hedging investment portfolios. Including up to 5 percent gold reduces the risk of portfolio losses considerably. Xetra Gold is the only product on the market that is backed by physical gold and does not display any tracking errors. It is good value, flexible and very safe – making it highly suited to institutional investors."
Xetra Gold (ISIN: DE000A0S9GB0) is a 100% gold-backed bearer bond issued by Deutsche Börse Commodities GmbH that represents the right to the delivery of gold. Each individual Xetra Gold note grants the investor the right to demand the delivery of one gram of gold from the issuer. The issuer holds a corresponding amount of physical gold and a limited amount of gold leaf rights for each Xetra Gold note. The fact that Xetra Gold takes the form of a security makes it fungible and as easy to transfer as a share. Xetra Gold conforms to the European UCITS criteria for securities investment, and is thus also suitable for institutional investors. Thanks to an amendment to the BaFin Regulation on the Investment of Restricted Assets of Insurance Undertakings, insurance companies in Germany have also been allowed to purchase Xetra Gold for their restricted assets in the amount of up to 5 percent of their commodities investment since 29 June 2010. The international derivatives exchange Eurex offers futures and options on Xetra Gold. Xetra Gold can also be deposited as collateral with Eurex Clearing, Europe’s largest central counterparty. Xetra Gold is admitted for sale to the public in Switzerland, Austria, Luxembourg, the UK and the Netherlands, as well as Germany. www.deutsche-boerse.com/xetra-gold
About Deutsche Börse Commodities GmbH
The Xetra Gold issuer Deutsche Börse Commodities GmbH, based in Frankfurt, is a joint venture between Deutsche Börse AG and the banking partners Commerzbank AG, Deutsche Bank AG, DZ Bank AG, B. Metzler seel. Sohn & Co. KGaA, and Swiss-based Bank Vontobel. Umicore AG & Co. KG, a Group subsidiary of Umicore s.a. which operates several gold refineries across the globe and manufactures gold bars, is also a partner. The issuer’s sole business purpose is to provide the market with Xetra Gold, the bond backed 100 percent with physical gold, and to enable efficient, transparent and cost-effective trading of this securitization of physical gold.
With over 18,000 employees in more than 40 countries, Mercer is one of the leading global service providers in consulting, outsourcing and investments. In Germany, Mercer has over 600 employees and is present in Berlin, Düsseldorf, Frankfurt, Hamburg, Leipzig, Mülheim an der Ruhr and Stuttgart. Its focus is on advising businesses in the areas of occupational pension schemes, remuneration, human capital strategy, M&A and investments and benefits outsourcing.
Xetra® and Xetra-Gold® are registered trademarks of Deutsche Börse AG.