After a slow start for Gold in 2018, tensions and uncertainties drove prices higher in the 2nd half to  eke out  a 1.2% gain (in MYR terms) for the year. We started the year on a high note, with strong investors' confidence leading investors to stay focused on riskier assets. Financial  markets  turned awry soon after, with threats of a trade war between the US and China, geopolitical risks, and  waning confidence  on the pace of global growth driving pushing interest back into safer haven assets.

With US Dollar losing ground against its peers, Gold took centre stage as the asset class of choice amidst these uncertain times, surging in the final quarter of the year. It ended the year as the only  positive performer over a 3-month, 6-month, and 1-year period.

Source: Bloomberg as at 31 December 2018. Returns quoted in MYR terms.

 

Gold still matters

Gold remains the asset class of choice for value storage by global central banks. Countries such as United States, Germany, Italy, France, and Russia make up the top 5 central banks with the highest holdings of Gold - collectively owning 18.5 thousand tones as at January 2019.

Being scarce in nature, the value of the precious metal will likely hold as demand continues to grow. And  with no clarity in the uncertainties faced in the current environment, prices are expected to  soar  as  investors seek out avenues to store their wealth.

 

How much Gold is enough?

Can you really own too much Gold? The wise men on the mountain says "one should not keep all eggs in one basket". On hindsight, it would probably have been best if all your assets were kept in gold in 2018. But then again, you'll probably have changed many other things in hindsight.

Which is why we continue to advocate diversifications, which works to enable the capitalisation of the exposure into the different asset classes during different market cycles. The snapshot below provides you with a 1, 3, and 5-year performance of various markets and how having Gold as a component in your portfolio would have helped your portfolio.

Source: Bloomberg as at 31 December 2018. Returns quoted in MYR terms.

 

Model Portfolio

  • A balanced portfolio into
    1. Gold, and
    2. Domestic equities.
  • The stronger performance of Gold had helped maintain the value of the portfolio over the course of 3 and 5-years when the domestic equity market saw slower performance.
  • A balanced portfolio into
    1. Gold, and
    2. Asian equities.
  • While Asian equities had also done well over the longer-period, the exposure into Gold provides a protection. This is evident in the shorter 1-year period, where Gold outperformed the regional equities by 16%.
  • A completely diversified portfolio with equal weightings into
    1. Gold,
    2. Domestic equities,
    3. Asian equities, and
    4. Global equities
  • The weakness of the exposure in domestic equities was supported by the stronger perfromance of the reqional, and global quities, as well as the spike in gold price.

Source: Bloomberg as at 31 December 2018. All returns are quoted in MYR.

 


Note: References made to the performance of Gold is represented by the LBMA Gold Price AM fixing, Domestic equities by FTSE Bursa Malaysia KLCI Index, Asian equities by MSCI Asia ex Japan Index, and Global equities by MSCI World Index. All returns are quoted in Malaysian Ringgit.

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