• Robust Long-Term Returns: Over the past five decades, gold has demonstrated an annualized return of approximately 8% in US dollar terms, comparable to equities and outperforming bonds
• Effective Diversification: Gold exhibits a negative correlation to equities, particularly during market downturns. For instance, during the Global Financial Crisis (2008-2009), gold
• High Liquidity: Daily trading volumes in 2023 averaged around US$163 billion, making gold more liquid than major financial markets

Harare- Gold has long been recognized as a strategic asset, playing a pivotal role in the construction of well-diversified investment portfolios.

According to World Gold Council, Its unique characteristics make it an indispensable component for investors seeking to balance risk and reward over the long term.

As a highly liquid asset with no credit risk, gold stands out as a store of value that is not contingent on any counterparty’s financial health. Its scarcity and historical ability to preserve wealth further buttress its appeal.

Besides, gold’s demand is multi-layered, stemming from its use in jewellery, technology, central bank reserves, and investment products. This diversity of demand contributes to its resilience and ability to deliver robust returns across varying market conditions.

One of gold’s most compelling attributes is its ability to generate long-term returns.

Over the past five decades, gold has demonstrated an annualized return of approximately 8% in US dollar terms, rivaling the performance of equities and outperforming bonds.

This performance is not serendipitous but is underpinned by a robust framework known as Gold’s Long-Term Expected Return (GLTER).

This model posits that gold’s returns are driven by a combination of economic and financial factors, closely mirroring global GDP growth and consistently outpacing inflation.

As such, gold is not merely a hedge against uncertainty but also a strategic asset capable of enhancing portfolio returns over extended periods. Its dual role as both a consumer good and an investment asset further bolsters its performance, with counter-cyclical investment demand driving prices during economic downturns and pro-cyclical consumer demand supporting its value during expansions.

In addition to its return-generating potential, gold serves as an effective diversifier within investment portfolios. Unlike many assets that exhibit increased correlation during periods of market stress, gold’s negative correlation to equities and other risk assets tends to strengthen during market downturns.

This characteristic was particularly evident during the Global Financial Crisis (GFC) of 2008-2009, when gold prices rose by 21% in US dollar terms, even as equities, real estate, and other commodities experienced significant declines.

Similarly, during the market pullbacks of 2020 and 2022, gold maintained its value, providing a critical buffer against volatility. This ability to perform well in adverse conditions makes gold a reliable diversifier, helping to mitigate portfolio risk and enhance overall stability.

Liquidity is another key advantage of gold, making it an attractive asset for investors seeking flexibility and ease of access.

The global gold market is vast, with physical holdings by investors and central banks valued at approximately US$5.1 trillion, complemented by an additional US$1 trillion in derivatives trading.

Daily trading volumes in 2023 averaged around US$163 billion, surpassing liquidity levels in major financial markets such as euro/yen and the Dow Jones Industrial Average. This liquidity is further bolstered by the presence of physically-backed gold ETFs, which trade an average of US$2 billion daily.

Such depth and liquidity ensure that gold can be readily bought or sold without significantly impacting its price, providing investors with a reliable source of capital when needed.

Beyond its financial attributes, gold is increasingly aligned with the growing emphasis on environmental, social, and governance (ESG) considerations within investment strategies.

Responsibly sourced gold, produced under stringent ESG standards, offers investors an opportunity to align their portfolios with sustainable practices. Gold’s role in reducing exposure to climate-related risks is gaining recognition, as it is not directly tied to industries vulnerable to environmental regulations or carbon transition challenges.

This alignment with ESG objectives enhances gold’s appeal to a broader range of investors, particularly those prioritizing sustainability alongside financial performance.

Therefore, gold’s unique combination of long-term returns, effective diversification, and high liquidity positions it as a strategic asset that complements traditional investments such as stocks and bonds. Its ability to perform well across varying economic conditions, coupled with its alignment with ESG principles, makes it a valuable addition to modern investment portfolios.

As investors navigate an increasingly complex and uncertain financial landscape, gold’s enduring qualities ensure its relevance as a cornerstone of strategic asset allocation.

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