Comparison of Gold Alternatives
September 22, 2011 - Gold
Do the different ways of investing in gold produce similar outcomes? In their September 2011 paper entitled “A Comparative Analysis of the Investment Characteristics of Alternative Gold Assets”, Tim Pullen, Karen Benson and Robert Faff examine the diversification, hedging and safe haven properties of gold bullion, ten gold stocks, 11 gold mutual funds and two gold exchange traded funds (ETFs). A diversifier exhibits a positive (but less than one) average correlation with a reference asset/portfolio. A strong (weak) hedge exhibits negative (zero) average correlation with a reference asset/portfolio. A strong (weak) safe haven exhibits negative (zero) correlation with a reference asset/portfolio during market crises. They consider non-linearity by amplifying or pre-selecting intervals of extreme negative returns for the reference asset. Using daily levels of alternative gold assets and the S&P 500 Total Return Index as a reference asset during July 1987 through June 2010 (for bullion and gold mutual funds) and February 2005 through June 2010 (for all gold alternatives), they find that: Keep Reading