Gold is a unique asset class as it has long achieved its status as a safe haven investment in times of financial and geopolitical stresses. In addition to being an excellent hedge against inflation and currency values for the last 40 years, gold also stabilises one’s investment portfolio regardless of cyclical factors or economic conditions. According to the World Gold Council, investment demand for gold rose to about US$53 billion in 2007 from under US$5 billion in 2001.

CIMB Private Banking, Malaysia’s first full service private bank revealed that more investors are including gold in their investment portfolios for diversification purposes aimed at protecting and maintaining their wealth over the long term, particularly in the current volatile market environment. In recent nationwide seminars held exclusively for its high net worth clients, Alan Inn , Co-Head of CIMB Private Banking noted that demand for gold has been gaining ground due to interest rates that are now unsustainably low. Quantitative easing measures undertaken worldwide to reduce deflationary pressure are building up government debts and future inflationary pressure, thus adding concerns over the debasing of currency values. As such, the best way to protect against this is to diversify into gold assets.   

“Gold is a resilient form of investment as it has proven its worth even in unstable market periods. Prices of gold and gold-related investments tend to rise in periods of uncertainty, especially in times of high inflation or weak US dollar. In addition, statistics have shown that gold provides excellent diversification opportunities as it is neither positively nor negatively correlated with returns from mainstream assets,” added Inn . A strategically diversified portfolio does not only contain a range of different asset types such as stocks and bonds, but should also have assets that have low correlation with one another.

Inn advised investors to invest in gold not specifically for delivering a huge out-performance, but to neutralise the volatility of traditional asset classes and attain a more balanced and non-correlated portfolio of investments. Inn said that portfolios that contain gold are generally more robust and better able to cope with market uncertainties and volatility than those that do not. He recommended that at least 3% of a portfolio be parked in gold for conservative investors, 5% for balanced investors and up to 8% for investors with a higher risk appetite. ETFs offer the best platform for as it gives direct exposure to gold, mirrors the price performance of the bullion and is easier to purchase and sell than bullion since it is traded in major stock exchanges worldwide.