Golden Strategy

Key takeaways:

• Gold's reliability has stood the test of time
• Gold has historically proven its role as a protective instrument against inflation and risks
• In the peak phase of previous crises, the strategy has shown a multiple of growth - an important quality for an insurance instrument

Description

Gold has maintained its status as a valuable savings asset for centuries, confirming its role as a protective instrument against various risks and uncertainties in human history. Over the last 10 years, investors have favoured equities, as gold has not generated any income and the rise in price has not been impressive.  That said, all nations hold part of their reserves in gold and continue to increase their reserves. In any crisis scenario, gold is expected to perform better than equities as the latter are hit hard by increased economic risks (bankruptcy, falling demand and changing business conditions).  

It is important to note that gold is already showing growth against equities and this growth will be rapidly increasing at a time when the market will experience panic, a crisis of confidence in financial institutions, currencies and governments. The inflationary panic in early 1980 caused stocks to fall 10 times against gold (see graph below). Failure to curb inflation this time around allows for a similar scenario to be expected.

Exposure to gold via gold futures, equity index invested via the most popular inverse ETFs or the S&P 500 equity index futures.   

To assess the strategy's potential, historical value movements during the 2008 economic crisis were used. This strategy would have gained 210%.