Oct 12 2011 1:49PM

How does gold perform during times of turmoil?

Jason Toussaint from the World Gold Council (WGC) provided some interesting perspective during our recent Case for Investing in Gold webcast that sheds some light on this question. The WGC looked back at six incidences of market turmoil over the past few decades:

• Black Monday (1987)
• Long-Term Capital Management (LTCM) Crisis (1998)
• Dot-com Bubble (2000)
• 9/11 Terrorist Attacks (2001)
• Slowdown (2002)
• Great Recession (2008)

The WGC calculated two $100 million portfolios. One portfolio held approximately 55 percent equities, 40 percent fixed income and 5 percent alternative assets. The second portfolio reduced the equity allocation by 6 percent and added gold. Here is a chart of the results.

In five out of the six periods during market turmoil, an allocation to gold preserved wealth by reducing the hit taken by the portfolio. On average, the portfolios with an allocation to gold were about 7 percent more buoyant. Only during the Dot-com Bubble did gold in a portfolio hurt its performance.

These dramatic events happen infrequently. However, Toussaint suggests investors consider this mantra when constructing their portfolios: “It’s best to prepare for the worst and hope for the best.”

Listen to the Full Presentation

By Frank Holmes,
CEO and Chief Investment Officer
U.S. Global Investors

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U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Diversification does not protect an investor from market risks and does not assure a profit. Past performance does not guarantee future results.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy's movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.  

This article can be found at kitco.com