How much gold should one hold?’ State Street seeks an answer
State Street Global Advisors’ Chris Goolgasian seeks an answer to the difficult conundrum – ‘how much gold should I hold in my portfolio?’
The question is not just about physical holdings, but also since recent times about denominating general fund holdings in gold.
Groups such as Paulson & Co and Ashton Advisors offer gold share classes for some funds, while Swiss & Global Asset Management has allowed redemptions from some of its funds paid in gold.
SSGA’s Goolgasian says: “In looking at the industry for help, precise data on actual gold allocations is difficult to come by. We have seen estimates, such as the World Gold Council’s The Strategic Case for Gold, January 2010, that gold comprises just 1% of the world’s total global assets, and our experience with both institutional and advisory-based clients would support this. If anything, 1% might be on the high side of the typical portfolio’s actual ownership.”
Goolgasian says, when working with an institutional client you must also consider investment policy constraints and tracking error goals.
“In our client portfolios which are tactically able to hold gold, we generally hold a position in the low- to mid-single digits.”
And what asset class should money be taken out of, to finance buying the gold exposure?
“We have viewed gold as a ‘risky asset’, indeed, its volatility indicates [this], with gold’s volatility nearly the same as the S&P 500’s, at around 20% for the past three years. Additionally, with no ‘principal value’ to return, it looks more like a non-dividend paying equity than a fixed income instrument.
“However, in a true inflationary spiral, one would probably like gold to offset some or all of their fixed income portfolio. Given this ‘split personality’, we believe in dynamically funding our gold positions from both the equity and fixed income portfolios, with our other tactical views dictating which, and how much.”