What makes gold a strategic asset?

Gold benefits from diverse sources of demand: as an investment, a reserve asset, a luxury good and a technology component. It is highly liquid; it is no one’s liability; it carries no credit risk, and it is scarce, historically preserving its value over time. 

Gold can enhance a portfolio in four key ways:

  • generate long-term returns (Chart 2)
  • act as a diversifier and mitigate losses in times of market stress (Chart 5)
  • provide liquidity with no credit risk (Chart 6)
  • improve overall portfolio performance. (Chart 8)

Our analysis illustrates that adding between 9.5% and 16% of gold to an average, Singapore-based  institutional portfolio since the onset of the financial  crisis would have resulted in higher  risk-adjusted returns.5

The case for gold in Singapore

A major financial and shipping hub, Singapore stands out in developing ASEAN.1 GDP per capita has nearly tripled in the last 20 years and Singapore now ranks as one of the most prosperous nations in the world.2 But risks and challenges remain, even for Singapore.3

Risk of currency depreciation 

In the immediate future, the economic fall-out from the COVID-19 pandemic remains the most critical risk. A combination of falling exports, lower oil prices, fewer tourists and rising unemployment is widely expected to create a decline in both demand and inflation.This, in turn, increases the risk of further depreciation in the Singapore dollar.

Trade tensions and geopolitical uncertainty

Beyond the pandemic, trade-reliant Singapore is deeply vulnerable to ongoing geopolitical uncertainty. Further deterioration in US-China relations could generate considerable friction in ASEAN and prompt a slowdown in global demand. Singapore is not immune to capital outflows typically seen in ASEAN at such times and a global flight to safety could provoke a broad decline in Singapore dollar-denominated assets.

An ageing population

In the long run, an ageing population is expected to impose further pressure on Singapore’s public finances. Sovereign wealth funds, which contribute to the national budget, will almost certainly need to take on riskier, illiquid investments to finance growing government expenditure.4 Financial institutions will also have to adopt riskier asset allocations to support profitability, as an ageing population is likely to perpetuate a low yield environment.

The role of gold

Consumers in Singapore have long recognised the benefits of gold. Per capita gold consumption is among the highest in the world and second only to Hong Kong in Asia.5 However, institutional investors also stand to benefit from allocating a proportion of their portfolio to gold. In today’s environment, we believe that gold has an increasingly relevant role to play, helping investors navigate the risks and challenges in both Singapore and the wider ASEAN region (see Focus 2).

Focus 1: Understanding gold valuation

Gold does not conform to most of the common valuation frameworks used for stocks or bonds. Without a coupon or dividend, typical discounted cash flow models fail. And there are no expected earnings or book-to-value ratios either. 

Our research shows that, in fact, valuing gold is intuitive: its equilibrium price is determined by the intersection of demand and supply which we highlight with QaurumSM.13

  • Economic expansion: periods of growth are very supportive of jewellery, technology and long-term savings
  • Risk and uncertainty: market downturns often boost investment demand for gold as a safe haven
  • Opportunity cost: the price of competing assets, especially bonds (through interest rates) and currencies, influence investor attitudes towards gold
  • Momentum: capital flows, positioning and price trends can ignite or dampen gold's performance.
Focus 1



The relevance of gold today

Institutional investors have increasingly embraced alternatives to traditional stocks and bonds, in pursuit of diversification and higher risk-adjusted returns. The share of non-traditional assets among global pension funds increased from 7% in 1998 to 23% in 2019.7 (Chart 1).

Gold has benefited from this shift. Global investment demand for gold has increased by an average of 14% per year since 2001, while the price has increased almost four-fold during that period.8


    Chart 1: Investors continue to add alternative investments, including gold, to their portfolios*

    Chart 1: Investors continue to add alternative investments - SG

    Sources: World Gold Council, Willis Towers Watson; Disclaimer

    *As of December 2019. Based on Willis Towers Watson Global Pension Assets Study 2019, published February 2020. 


    The principal factors behind this surge in demand include: 

    • Emerging market growth: economic expansion, particularly in China and India, has increased and diversified gold’s consumer and investor base (see Chart 14in the full report.
    • Market access: the launch of gold-backed ETFs in 2003 facilitated access to the gold market and materially bolstered interest in gold as a strategic investment, reducing the total cost of ownership and increasing efficiencies (see Chart 15 in the full report). In Southeast Asia, the listing of the SPDR gold shares on the Singapore Stock Exchange and the launch of the AAOIFI’s Shari’ah Standard on Gold have improved access to gold in the region and catalysed the development of several new Shari’ah gold products, particularly in Malaysia.9 In addition, Singapore citizens and Permanent Residents can use their CPF savings to invest in gold ETFs and other gold products.10
    • Market risk: the global financial crisis and, more recently, the COVID-19 pandemic have prompted a renewed focus on effective risk management and an appreciation of uncorrelated, highly liquid assets such as gold (see Chart 17 in the full report). Today, trade tensions, the growth of populist politics and increased macro-economic uncertainty have encouraged investors to re-examine gold as a traditional hedge in times of turmoil (see Chart 25, and Chart 26 in the full report).
    • Monetary policy: persistently low interest rates reduce the opportunity cost of holding gold and highlight its attributes as a source of genuine, long-term returns, particularly when bonds yields around the world are at historic lows or even in negative territory (see Chart 24 in the full report). In Southeast Asia, central banks have also pursued accommodative monetary policies to navigate an economic landscape that was challenging even before the COVID-19 pandemic. Interest rates are generally higher than those in developed markets, especially in Indonesia. However, with foreign exchange risks, the opportunity cost of holding gold is still relatively low, after accounting for currency hedging.  
    • Central bank demand: a surge of interest in gold among central banks across the world has encouraged other investors to consider gold’s positive investment attributes. Central bank reserve managers commonly use gold for safety and diversification (see Chart 16 in the full report).

    Gold’s strategic role

    Gold is a clear complement to stocks, bonds and broad-based portfolios. A store of wealth and a hedge against systemic risk, currency depreciation and inflation, gold has historically delivered positive returns, improved portfolios’ risk-adjusted returns and provided liquidity to meet liabilities in times of market stress. 

    Gold takes on added importance in the portfolios of Singapore-based investors. Gold’s safe-haven qualities can shelter portfolios from the uncertainties arising from geopolitical risks and trade tensions (see Chart 25 in the full report). In an ageing society, it might be considered an essential safe-haven anchor in portfolios that are pushed to take on more risk see Chart 26 in the full report). For investors looking to invest in ASEAN, gold can serve as a hedge against current account vulnerabilities and volatile commodity prices (see Chart 27 in the full report).

    1. A source of returns

    Gold has long been considered a beneficial asset during periods of uncertainty. Historically, however, it has generated long-term positive returns in both good times and bad. Over the last 20 years, the price of gold saw an average annual increase of 8-13% in the local currencies of ASEAN-6.11 Over the same period, gold also outperformed the Straits Times index and both ASEAN and APAC stocks. (Chart 2 and Chart 18 in the full report).

    Unlike almost any other asset, demand for gold is multi-faceted. Gold is used to protect and enhance wealth over the long-term. Gold also operates as a means of exchange, because it has global recognition and is no one’s liability. Gold is in demand as a luxury good, too, valued by consumers across the world. And it is a key component in electronics.12 These diverse sources of demand give gold a particular resilience: the potential to deliver solid returns in good times and in bad (Focus 1).


    Chart 2: Gold has delivered positive returns over the long run, outperforming key asset classes

    Chart 2: Gold has delivered positive returns SG

    Average annual return of key Asia Pacific assets in US dollars*

    Sources: Bloomberg, MSCI Inc, S&P Dow Jones Indices, World Gold Council; Disclaimer

    * As of 31 December 2019. Computations in US dollars of total return indices for MSCI AC Asia Pacific REITS Index, S&P Pan Asia Corporate Bond Index, MSCI AC Asia Pacific Index, MSCI AC ASEAN Index, Bloomberg Commodity Index, MSCI World Index, Straits Times Index and spot for LBMA Gold Price PM. 

    For compounded annual growth rates see Appendix Chart 18 in the full report.


    Beating inflation, combating deflation

    Gold has long been considered a hedge against inflation and independent data confirms this. If an investor had bought gold in the domestic currencies of Indonesia, Thailand, Singapore, Vietnam or Malaysia, their annualised compounded return would have outpaced average annual inflation in these countries for the past 30 years.16 

    Gold also protects investors against extreme inflation. In years when inflation was higher than 3%, the price of gold increased by 9.3% on average across the five countries above (Chart 3). Over the long term, therefore, gold has not just preserved capital but helped it to grow. 

    Notably too, research by Oxford Economics shows that gold should do well in periods of deflation.17 Such periods are characterised by low interest rates, reduced consumption and investment and financial stress, all of which tend to foster demand for gold.


    Chart 3: Gold has historically rallied in periods of high inflation

    Chart 3: Gold has historically rallied in periods of high inflation SG

    Gold returns in domestic currencies as a function of annual inflation*

    Sources: ICE Benchmark Administration, International Monetary Fund, World Gold Council; Disclaimer

    *Based on y-o-y changes of the LBMA Gold Price in domestic currencies and percentage change in end-period consumer prices in Indonesia, Thailand, Singapore, Malaysia and Vietnam between 1990 and 2019.


    Outperforming fiat currencies

    In recent times, investor demand for gold has been boosted by persistently low interest rates and concerns about the outlook for the dollar, as both these factors affect the perceived opportunity cost of holding gold.

    Analysis of the past five decades shows, however, that gold outperforms fiat currencies over the long term as well. 

    Historically, major currencies were pegged to gold. That changed with the collapse of Bretton Woods in 1971. Since then, gold has significantly outperformed all major currencies as a means of exchange (Chart 4). This outperformance was particularly marked immediately after the end of the Gold Standard and, subsequently, when major economies defaulted. A key factor behind this robust performance is that the supply growth of gold has changed little over time – increasing by approximately 1.6% per year over the past 20 years.14 By contrast, fiat money can be printed in unlimited quantities to support monetary policy, exemplified by the Quantitative Easing (QE) measures in the aftermath of the global financial crisis and again this year. 

    In Southeast Asia, all ASEAN-6 currencies, besides the Thai Baht, have lost ground against the US dollar over the past ten years, reflecting weak current account balances and a host of other factors. This compares to a 43.52% gain in the price of gold against the US dollar in the same period.15 


    Chart 4: Gold has outperformed all major fiat currencies over time

    Chart 4: Gold has outperformed all major fiat currencies SG

    Relative value between major currencies and gold since 1900*

    Sources: Bloomberg, Harold Marcuse – UC Santa Barbara, World Gold Council; Disclaimer

    *As of 31 December 2019. Based on the annual average price of a currency relative to the gold price. **Euro is composed of the Deutschemark from 1948 – 1978, the ECU from 1979 – 1998, and the Euro from 1999 – 2019. 

    Focus 2: Risks and rewards in ASEAN

    With a young, increasingly well-educated workforce and an expanding middle-class, ASEAN is expected to see five of its member states move into the world’s 25 largest economies by 2050.18  

    However, ASEAN’s rosy outlook does not come without risks. Even before the COVID-19 pandemic, growth was expected to slow in the years ahead while current account balances have weakened since the financial crisis.19 Dependence on trade and commodity exports also subject the region to trade tensions and volatile commodity prices. Fragile domestic politics and geopolitical stress create another layer of uncertainty.


    Indonesia is heavily dependent on foreign capital to finance its current account and fiscal deficits. This leaves the rupiah exposed to capital reversals, which could arise during tighter global financial conditions, trade tensions, slower than expected growth in China and soft market sentiment. Indonesia is also a net importer of oil, leaving the current account and rupiah vulnerable to higher oil prices20.


    As a highly open economy, Malaysia is vulnerable to trade uncertainties and slower growth among its trading partners. Oil-related revenue also constitutes almost 20% of government revenue and external and household debts are high compared to peers.21 This exposes the ringgit and ringgit-denominated assets to volatile swings in commodity prices, fiscal and financial risks. 


    While Vietnam is one of the fastest growing countries in ASEAN, it is not without risk. Foreign reserves are low so the Vietnamese dong, which is loosely pegged to the US dollar, is vulnerable to speculative pressure during episodes of systematic risk, such as the COVID-19 pandemic and escalating trade tension. In the long-run, Vietnam has a 20-year window before rapid ageing sets in.

    The country is also particularly vulnerable to global climate change.22 23


    Thailand’s healthy current account surplus and accumulating reserves have come at the cost of a strong Thai baht. This has increased labour costs and raised long-term competitiveness concerns. Even before the pandemic, real GDP growth had been lagging peers, while employment, inflation, investments and productivity growth have been in steady decline. The country has high household debts too and is vulnerable to trade uncertainties, slower growth among trading partners and an ageing population.24  


    While Philippines has been one of the best performing economies in the region, it suffers from a rising current account deficit. This exposes the Peso to the risk of depreciation, which could heighten as the COVID-19 pandemic reduces tourist arrivals and cripples 25% of the economy.25 Philippines is also particularly prone to natural disasters, which affect food production and damage property.26

    The relevance of gold

    Investing in ASEAN involves risks that are both common to the region and unique to each country. For investors looking to participate in ASEAN’s growth potential, gold can make a valuable contribution to their portfolio. As a safe-haven asset, gold is an attractive alternative to local government bonds, which can be illiquid and prone to capital outflows (Chart 6). Gold is also one of the few assets that retains its value and, in some cases, provides returns during periods of capital reversals (see Chart 27 in the full report). It is also a hedge against volatile commodity prices and performs well when natural disasters occur (see Focus 3).


    2. Diversification that works

    The benefits of diversification are widely acknowledged—but effective diversifiers are hard to find. Many assets are increasingly correlated, as market uncertainty rises and volatility is more pronounced, driven in part by risk-on/risk-off investment decisions. As a result, many so-called diversifiers fail to protect portfolios when investors need them most.  

    Gold is different: its negative correlation to stocks and other risk assets increases as these assets sell off (see Chart 26 in the full report) The 2008-2009 financial crisis is a case in point. Stocks and other risk assets tumbled in value, as did hedge funds, real estate and most commodities, which were long deemed to be portfolio diversifiers. In Southeast Asia, stock markets of the ASEAN-6 fell 49.7% on average in 2008, while gold rose on average by 17.17% in local currencies.27 

    This robust performance is perhaps not surprising.

    Dual benefits

    Gold has consistently benefited from “flight-to-quality” inflows during periods of heightened risk. It is particularly effective during times of systemic risk, delivering positive returns and reducing overall portfolio losses (see Chart 25 in the full report).

    But gold’s correlation does not just work for investors during periods of turmoil. It can also deliver positive correlation with stocks and other risk assets in positive markets.

    This dual benefit arises from gold’s dual nature: as an investment and a luxury good. As such, the long-term price of gold is supported by income growth. Our analysis bears this out, showing that when global stocks rally, their correlation to gold can increase (Chart 5), probably driven by a wealth-effect, supporting gold consumer demand, as well as demand from investors seeking protection against higher inflation expectations.

    In Singapore, gold complements the Straits Times index with its negative downside correlation to global stocks. As a highly open, small economy, Singapore is vulnerable to shifts in global market sentiment, and the Straits Times index tends to fall when global stocks retreat. In contrast, gold, denominated in either US dollars or Singapore dollars, tends to rise when global stocks fall. 

    Gold versus domestic bonds

    For investors investing in ASEAN, historically, gold can retain its value and even provide returns during periods of capital outflows (see Chart 27 in the full report). During the taper tantrum in 2013, for example, rising US treasury yields provoked capital outflows across the region and countries with negative current account balances, such as Indonesia and Philippines, were particularly affected. Local government bond yields soared and currencies fell alongside equity markets.  A glance back at that time highlights the relative performance of gold versus domestic bonds. On 22nd May 2013, Ben Bernanke, then Chair of the US Federal Reserve (the Fed), appeared before Congress and revealed his tapering plans. Between that day and the end of September, when the sell-off in US Treasuries began to slow down, the Indonesian 10-year government yield rose by 276 basis points. Over that same period, gold rose 23% in Indonesian rupiah. 

    A hedge against local currencies

    For ASEAN countries vulnerable to volatile commodity prices, such as Indonesia or Malaysia, gold’s historically low correlation to this asset class makes it an ideal hedge against fluctuating currencies. Importantly too, gold allows investors to meet liabilities when less liquid assets in their portfolio are difficult to sell, undervalued and possibly mispriced. This is particularly relevant for investors investing in ASEAN, as local government bonds often lack liquidity (Chart 6). During periods of capital outflows, gold can also be used as a source of US dollar funding too. 


    Chart 5: Gold’s correlation with stocks helps portfolio diversification in good and bad economic times

    Chart 5: Gold’s correlation with stocks helps portfolio diversification SG

    Correlation of gold, Straits Times Index and ASEAN stock returns in various environments of global stock performance*

    Sources: Bloomberg, MSCI Inc, World Gold Council; Disclaimer

    * As of 30 June 2020. Correlations computed using weekly returns based on the MSCI World Index, MSCI AC ASEAN Index, Straits Times index and the LBMA Gold Price PM since December 2000. All stock indices are denominated in US dollars

    The middle bar corresponds to the unconditional correlation over the full period.

    The bottom bar corresponds to the correlation conditional on the MSCI World Index weekly return falling by more than two standard deviations (or ‘σ’) respectively, while the top bar corresponds to the MSCI World Index weekly return increasing by more than two standard deviations.

    The standard deviation is based on the same weekly returns over the full period.     


    3. A deep and liquid market

    The gold market is large, global and highly liquid. 

    We estimate that physical gold holdings by investors and central banks are worth approximately US$4.4trn, with an additional US$900bn in open interest, through derivatives traded on exchanges or the over-the-counter market.28

    The gold market is also more liquid than several major financial markets, including German Bunds, the Dow Jones Index and US T-bills,28 while trading volumes are similar to 1-3 year US Treasuries (Chart 6). In ASEAN, gold’s average daily trading volume in 2019 was larger than the combined daily average of the USD/SGD, ASEAN bonds and the three largest equity markets in the region. During that period, over-the-counter spot and derivatives contracts accounted for US$78bn and gold futures traded US$65bn per day across various global exchanges. Gold-backed ETFs offered an additional source of liquidity, with the largest US-listed funds trading an average of US$2bn per day.

    The scale and depth of the market mean that it can comfortably accommodate large, buy-and-hold institutional investors. Importantly too, gold’s liquidity does not dry up, even at times of acute financial stress. For ASEAN investors struggling to find a liquid safe-haven in the region, gold is an attractive complement to traditional safe-haven assets, such as US Treasuries.


    Chart 6: Gold trades more than many other major financial assets

    Chart 6: Gold trades more than many other major financial assets SG

    Average daily trading volumes in US dollars*

    Sources: Asian Development Bank, Bloomberg, Bank for International Settlements, Germany Finance Agency, London Bullion Market Association, World Gold Council; Disclaimer

    *Based on estimated one-year average trading volumes as of 31 December 2019, except for currencies that correspond to March 2019 volumes due to data availability.
    *ASEAN bonds include the government bonds from Thailand, Singapore, Malaysia, Vietnam and Indonesia
    **Gold liquidity includes estimates on over-the-counter (OTC) transactions and published statistics on futures exchanges, and gold-backed exchange-traded products. For methodology details visit the liquidity section at
    ** Singapore Exchange’s liquidity includes trading volume of all securities traded on the exchange
    **SET index’s liquidity includes trading volume includes all indices in the SET index series
    **Jakarta Composite Index’s trading volume includes trading volumes of all stocks only

    Chart 7 - Gold performed well in years when the number of natural disasters increased from the previous year

    Chart 7 - Gold performed well in years when the number of natural disasters increased from the previous year

    Average annual returns of gold in local currencies in years when the number of natural disasters in the country increased from the previous year* 

    Sources: CRED (2019), Emergency Events Database (database), Centre for Research on the Epidemiology of Disasters, Brussels, London Bullion Market Association, World Gold Council; Disclaimer

    * From 1990 – 2019.

    Focus 3: Gold can serve as a hedge against climate risks

    Emerging Asia is particularly vulnerable to natural disasters brought on by climate change. The OECD, citing data from the Centre for Research on the Epidemiology of Disasters, reports that the region experienced 25.9% of global disaster events between 2010 and 2017, and suffered 10.6% of the deaths and 22.7% of the damage they caused.28

    For Southeast Asia, a region that sits on several tectonic plates and is thus exposed to a heightened risk of earthquakes, flooding and tsunamis, gold can serve as a financial refuge and hedge against climate change, particularly for countries such as Indonesia, Philippines and Vietnam which are especially prone to natural disasters.



    4. Enhanced portfolio performance

    Long-term returns, liquidity and effective diversification all benefit overall portfolio performance. In combination, they suggest that a portfolio’s risk-adjusted returns can be meaningfully enhanced through the addition of gold. 

    Our analysis of investment performance over the past 2, 5, 10 and 13.5 years underlines gold’s positive impact on an institutional portfolio. It shows that the average institutional investor based in Singapore would have achieved higher risk-adjusted returns if 2%, 5%, 7.5% or 10% of their portfolio were allocated to gold. (Chart 8 and Table 1). This positive impact has been particularly marked since the global financial crisis. 

    But our analysis shows that even stronger dynamics apply in the future. This suggests that investors based in Singapore could derive even greater benefits in times to come, if they allocate between 9.5% and 16% of a well-diversified portfolio to gold (Chart 9).

    The amount of gold varies according to individual asset allocation decisions. Broadly speaking however, the higher the risk in the portfolio—whether in terms of volatility, illiquidity or concentration of assets—the larger the required allocation to gold, within the range in consideration, to offset that risk (Chart 9).31 

    Our analysis indicates that gold’s optimal weighting in hypothetical portfolios is statistically significant even if investors assume an annual return for gold of between 2% and 4% - well below its actual long-term historical performance.

    This works equally for investors who already hold other inflation-hedging assets, such as inflation-linked bonds,32 and for investors who hold alternative assets, such as real estate, private equity and hedge funds.33


    Chart 8: Adding gold to the portfolio would have increased risk-adjusted returns of an average Singapore-based institutional portfolio

    Chart 8: Adding gold to the portfolio SG

    Performance of an average institutional (PF) portfolio with and without gold*

    Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

    *Based on the total return indices in US dollars of benchmarks listed below. Time period used for analysis, 31 January 2007 - 30 June 2020, is limited by availability of APAC data. Monthly rebalancing.

    **Risk adjusted return defined as portfolio return divided by annualised volatility.

    The composition of the hypothetical average portfolio is based on a survey conducted by the Monetary Authority of Singapore for FY 2018. It includes total returns in USD for a 46% allocation to stocks (12.9% MSCI AC ASEAN, 21% MSCI AC APAC, 6.6% MSCI N.America, 5.6% MSCI Europe), 9.7% allocation to sovereign bonds (7.13% S&P Pan Asia Govt Bonds, 1.4% Barclays US Treasuries, 1.2% S&P Eurozone Sovereign Bonds),17.3% allocation to corporate bonds (12.7% S&P Pan Asia Corporate Bonds, 4.6% Barclays Global Aggregate Corporate Bonds), 7.4% allocation to private equity (S&P Listed Private Equity Index), 6.1% allocation to hedge funds (HFRI Fund Weighted Composite Index), 3.7% allocation to real estate and REITs (6.45% MSCI AC APAC Real Estate Index, 1.25% FTSE Nareit Equity REITs, 1.06% FTSE EPRA Nareit Developed Europe Index), 0.21% allocation to venture capital (Thomson Reuters Venture Capital Index) and 4.5% allocation to cash (3.31% S&P Pan Asia Govt Bill Index, 0.64% Barclays US Treasury Bills Index, 0.54% FTSE MTS Eurozone Govt Bills 0-12Mth Index).

    Gold’s performance is based on the LBMA Gold price in USD and the respective 2%, 5%, 7.5% and 10% portfolio allocations come from proportionally reducing all assets.


    Chart 9: Gold can significantly improve risk-adjusted returns of hypothetical portfolios across various levels of risk

    Chart 9a: Gold can significantly improve risk-adjusted returns SG

    (a) Long-run optimal allocations based on asset mix*

    Sources: World Gold Council; Disclaimer


    Chart 9b: Gold can significantly improve risk-adjusted returns SG

    (b) Range of gold allocations and the allocation that delivers the maximum risk-adjusted return for each hypothetical portfolio mix*

    Sources: World Gold Council; Disclaimer

    *Based on monthly total returns from 31 January 2007 to 30 June 2020 of MSCI AC ASEAN, MSCI AC APAC, MSCI N.America, MSCI Europe, S&P Pan Asia Govt Bonds, Barclays US Treasuries, S&P Eurozone Sovereign Bonds, S&P Pan Asia Corporate Bonds, Barclays Global Aggregate Corporate Bonds, S&P Listed Private Equity Index, HFRI Fund Weighted Composite Index, MSCI AC APAC Real Estate Index, FTSE Nareit Equity REITs, FTSE EPRA Nareit Developed Europe Index, Thomson Reuters Venture Capital Index, S&P Pan Asia Govt Bill Index, Barclays US Treasury Bills Index and FTSE MTS Eurozone Govt Bills 0-12Mth Index. Each hypothetical portfolio composition is roughly equivalent to the portfolio in Chart 8. That portfolio reflects a percentage in stocks (Eqty - ASEAN, APAC, N.America and Europe stock indices), alternative assets (Alts - REITs, hedge funds, private equity and venture capital), cash and bonds (FI & cash - ASEAN, APAC, N.America and Europe sovereign and corporate bonds and bills) producing returns in the range of 4.8% - 5.1% only. For example: ‘Average portfolio’ is a portfolio with 42% in stocks, 18% in sovereign bonds and cash, 18% in corporate bonds and 22% in REITs, hedge funds, private equity and venture capital. Analysis based on New Frontier Advisors Resampled Efficiency. For more information see Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation, Oxford University Press, January 2008. 

    Time period chosen for analysis limited by availability of APAC data

    See important disclaimers and disclosures at the end of this report.


    Table 1: Gold increases risk-adjusted returns by reducing portfolio volatility and drawdowns across various time horizons

    Comparison of an average hypothetical institutional portfolio of an investor based in Singapore and an equivalent portfolio with 7.5% gold over the past 2, 5, 10 and 13.5 years*

      13.5 years** 10 years 5 years 2 years
      No gold 7.5% gold No gold 7.5% gold No gold 7.5% gold No gold 7.5% gold
    Annualised return 6.55% 7.06% 8.84% 8.71% 5.32% 5.92% 2.14% 3.97%
    Annualised volatility 10.68% 10.14% 8.58% 8.19% 8.88% 8.34% 10.94% 10.27%
    Risk-adjusted returns 0.61 0.70 1.03 1.06 0.60 0.71 0.20 0.39
    Maximum drawdown -47.30% -43.82% -24.59% -22.86% -24.59% -22.86% -24.59% -22.86%

    *As of 30 June 2020. The composition of the hypothetical average portfolio is based on a survey conducted by the Monetary Authority of Singapore for FY 2018.
    **Time period chosen for analysis limited by the availability of APAC data.

    Source: Bloomberg, ICE Benchmark Administration, World Gold Council

    Focus 4: Gold goes beyond commodities

    Gold is often considered part of the broad commodity complex, whether as a component of a commodity index (e.g. S&P GSCI Index, Bloomberg Commodity Index), a security in an ETF or a future trading on a commodity exchange. 

    Gold shares some similarities with commodities. But there are several important differences:

    • gold is a traditional safe-haven asset: scarce, yet highly liquid, it offers effective downside portfolio protection during difficult times
    • gold is both an investment and a luxury good, which reduces its correlation to other assets
    • the supply of gold is balanced, deep and broad, limiting uncertainty and volatility 
    • gold does not degrade over time, unlike several traditional commodities

    These unique attributes set gold apart from the commodity complex. And our research suggests that a distinct allocation to gold can enhance the performance of portfolios with passive commodity exposures.34



    Chart 10: Gold has outperformed all broad-based indices and all individual commodities

    Chart 10: Gold has outperformed SG

    20-year commodity and commodity index returns

    Sources: Bloomberg, World Gold Council; Disclaimer

    Annualised returns from December 1999 to December 2019 in US dollars. Indices include: S&P GS Energy Index, S&P GS Precious Metals Index, S&P GS Industrial Metals Index, S&P GS Non-Precious Metals Index, Palm Oil generic 1st contract (US$ / MT), Gold (US$/oz) London PM fix.



    Singapore benefits from political stability and robust economic growth. Yet the city-state is exposed to both risks and challenges in the years ahead. A small, open economy, Singapore is vulnerable to growing geopolitical uncertainty and global trade tensions. It also struggles with an ageing population and faces the prospect of rising government expenditure in an increasingly low yield environment.

    Gold can help investors manage, address and combat each of these risks. 

    First, gold offers attractive risk-adjusted returns and can bolster institutional portfolios in a low-yield environment. Viewed as both an investment and a luxury good, gold has delivered average returns of approximately 9.7% for nearly 20 years, outperforming stocks and bonds in ASEAN and APAC.35

    Second, its traditional role as a safe-haven asset means that gold comes into its own during times of high risk. 

    Third, for investors using Singapore as a gateway to ASEAN, gold acts as a hedge against currency fluctuations arising from local current account vulnerabilities and commodity price volatility.

    Fourth, gold insulates portfolios from the dangers of climate change.

    This combination of positive returns and long-term resilience makes gold an effective, attractive and rewarding asset in today’s environment – an anchor for any ASEAN investment portfolio.

    Overall, extensive analysis suggests that adding between 9.5% and 16% of gold to a Singapore-based institutional portfolio can deliver a tangible improvement to performance and boost risk-adjusted returns on a sustainable, long-term basis.36 


    1Association of Southeast Asian nations

    2According to the World Bank, Singapore’s GDP per capita grew from US$ 23,852 in 2000 to US$ 65,233 in 2019, the 14th in the world.

    3IMF country report no. 19/233 – Singapore 2019 Article IV.

    4Sovereign wealth funds GIC and Temasek both contribute to the national budget. Contribution to the budget has grown from 12.7% in 2013 to 19.7% in 2020. (Data.gov.sg) According to the IMF, Singapore’s healthcare spending is expected to double by 2050 to 8% of GDP.

    5As of 31 December 2019. For more details, see the demand and supply section at Goldhub.com.

    6See Chart 9 for more details behind the composition of the average Singapore-based institutional portfolio. In addition, refer to important disclaimers and disclosures at the end of this report.

    7Willis Towers Watson, Global Pension Assets Study 2019, February 2020 and Global Alternatives Survey 2017, July 2017.

    8As of 31 December 2019.

    9For more details, please refer to shariahgold.com

    10The Central Provident Fund (CPF) is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, and housing needs in Singapore.

    11ASEAN-6 countries include Singapore, Malaysia, Thailand, Vietnam, Indonesia and Philippines

    12See Chart 12 in the full report

    13Qaurum is a web-based quantitative tool that helps investors intuitively understand the drivers of gold’s performance that can be explained by four broad sets of drivers.

    14The compounded annual growth rate of gold since 1990 in the domestic currencies of the aforementioned countries are in the range of 3.36% to 11.93%, outpacing the compounded annual growth of inflation in the respective countries that are in the range of 1.65% to 9.92%. IMF, Bloomberg, World Gold Council

    15Oxford Economics, The impact of inflation and deflation on the case for gold, July 2011.

    16See the demand and supply section at Goldhub.com.

    17Bloomberg, World Gold Council

    18PWC, The World in 2050 - The long view: how will the global economic order change by 2050?

    19OECD, Economic Outlook for Southeast Asia, China and India 2020

    20IMF country report 19/250 – Indonesia, 2019 Article IV

    21IMF country report 20/57 – Malaysia, 2019 Article IV

    22Sustainable Development Department, Vietnam Country Office, "The World Bank: Climate-Resilient Development in Vietnam: Strategic Directions for the World Bank", January 2011.

    23IMF country report no. 19/235 – Vietnam, 2019 Article IV

    24IMF country report no. 19/309 – Thailand, 2019 Article IV

    25According to the World Travel and Tourism Council (WTTC), tourism and travel contributed 25% to the Philippines’ GDP in 2019, the most in ASEAN-6 countries

    26IMF country report no. 20/36 – Philippines, 2019 Article IV

    27World Gold Council, Bloomberg

    28See Chart 11 and Figure 1 in the Appendix in the full report as well as the holders and trends section at Goldhub.com.

    29See “The relevance of gold as a strategic asset”, US edition, February 2020

    30OECD, Economic Outlook for Southeast Asia, China and India 2020

    31Analysis based on the re-sampled efficiency methodology developed by Richard and Robert Michaud and praised as a robust alternative to traditional mean-variance optimisation. See Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation, Oxford University Press, January 2008.

    32Gold as a tactical inflation hedge and long-term strategic asset, July 2009.

    33How gold improves alternative asset performance, Gold Investor, Volume 6, June 2014.

    34See: Gold: the most effective commodity investment, September 2019, and Gold: metal by design, currency by nature, Gold Investor, Volume 6, June 2014.

    35See Chart 2

    36See Chart 8

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