Gold as a mathematical construct
For those who take the technical approach to market problems, here’s a mathematical construct on using gold as a portfolio hedge:
“We look at [gold] purely from a risk management perspective and not just a return generating investment instrument. An analysis of the correlation between returns generated by gold and those generated by equities and bonds over various time periods brings out the lack of correlation between gold returns and those generated by both debt and equity. And even though this negative correlation increases with time, our research shows that it reaches a maximum of -0.27 over a 5 year period which is an extremely low level. Therefore, gold becomes the ideal diversification tool which based on empirical analysis reduces volatility without hampering returns. This results in a sharply higher risk adjusted return, which can only be good news for long term investors.”
– Amit Nigam of Peerless Fund Management
MK note: Funny. Using empirical analysis he comes to the same place I do via an attempted understanding of economic history. Something for all the engineers out there who read these pages. . . . . . . It still comes down to viewing gold as a long-term savings alternative detached from the currency (whatever currency you happen to use in your financial accounts).