Buying gold: Diversify your portfolio

Buying gold as a long-term investment. Now also with 2% annual distribution.

Since its discovery, gold captures human’s imagination through its color, weight and its scarcity. Ancient cultures assumed that gold was transcendental. Nowadays, this shiny metal fulfils a much different function as a long-term investment. Security and diversification of the investment portfolio. 

Buying gold: The rare precious metal has always been historically relevant

Gold holds a great fascination for people. Geologically dispersed widely throughout the globe, its discovery occurred to different cultures at different places. Since then, it has traded freely on the world market and reaching an all time-high of around 2,200 US dollars per ounce in 2020. Emerging market countries and central banks in particular have built up their holdings in recent years in order to diversify their foreign exchange holdings.

Gold is and will remain a popular long-term investment

The price of gold performed strongly last year, even if there have recently been outflows. After reaching all-time highs in September, Gold has been consolidating. This coincided with a stabilization in both the US dollar and US real yields, to which gold investor flows are sensitive. Prospects for a softer US dollar and lower real yields should ensure a supportive backdrop. Traditional segments have stayed weak, failing to provide much support. Central bank activity also moderated amid foreign exchange reserve management considerations in certain emerging markets. The bullish outlook remains intact even if it may take a bit longer for gold to revisit the highs.

In an environment of recovering global economies, which should dominate 2021, gold might underperform more cyclical markets. Nevertheless, the Credit Suisse Global Investment Committee thinks gold should continue to do well in absolute terms. What are downside risks for the gold price? If financial markets start to discuss eventual policy tightening by central banks. However, this should not be a material risk for this year, as labor markets, which are at the center of updated policy frameworks, will take a long time to catch up again. A return to ultra-low volatility like in recent years is unlikely.

These are the main reasons for a long-term investment in gold

  • Economic growth to drive physical demand: Demand for Jewelry is closely linked to economic growth, especially in Emerging Markets
  • High debt and fiscal deficits bear inflation potential: Stimulatory fiscal policy while policy makers try to lift inflation expectations to keep real yields low and stabilize debts.
  • Low real yields everywhere: In order to support economies, monetary policies are highly expansive and rates are expected to be kept low.
  • Support in uncertain times: Except for extreme markets, gold tends to perform well in uncertain markets.
  • FX Diversification: Denominated in US dollar, Gold benefits from a weaker USD, especially driven by investor and emerging markets central bank demand.
  • Investment Diversification: Gold features a low correlation to other asset classes, has inflation hedge qualities and is a tangible investment.

Commodity investments and derivatives or indices thereof are subject to particular risks and high volatility. The performance of such investments depends on unpredictable factors such as natural catastrophes, climate influences, hauling capacities, political unrest, seasonal fluctuations and strong influences of rolling-forward, particularly in futures and indices.

Diversifying investments has its advantages

Advantages of investment diversification 

10 year correlation of weekly returns with Gold
2010–2020, all in US dollar

Source: Bloomberg, Credit Suisse
Past performance is not a reliable indicator of current or future results

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