New decade, renewed challenges
As the new decade begins, investors face an expanding list of challenges around asset management and portfolio construction. Among these:
- Low interest rates, which may push investors to seek riskier assets at elevated valuation levels and may increase the value of liabilities, possibly reducing their funding ratio
- Continued financial market uncertainty ranging from geopolitical tensions, to expectations of diverging global economic growth and an increase in asset volatility.
We believe that gold is not only a useful long-term strategic component for portfolios, but one that is increasingly relevant in the current environment. (see 2020 Gold Outlook).
The increased relevance of gold
Institutional investors across the globe have embraced alternatives to traditional stocks and bonds in pursuit of diversification and higher risk-adjusted returns. For example, the share of non-traditional assets among global pension funds increased from 7% in 1999 to 23% in 20192 (Chart 1).
Gold allocations have been recipients of this shift. It is increasingly recognised as a mainstream investment; evidenced by global investment demand that has grown by an average of 14% per year since 2001 and a gold price that has increased almost six-fold over the same period.3