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Gold posts positive returns in Q2 2011, while commodities suffer major price correction

Low volatility and measured price performance during Q2 demonstrates further gold’s role as a unique asset class

Gold is outperforming most major assets, including commodities, according to the World Gold Council. In their Q2 report, the Council stated that the trend continued throughout the second quarter, adding gold’s low average volatility of 13.4 per cent is well below its long-term 20-year average of 15.8 per cent.

“While commodities exhibited heightened levels of volatility and sharp falls in price during the month of May, gold’s volatility was modest and its price remained stable,” said Juan Carlos Artigas, investment research manager at the World Gold Council.

“Gold’s attributes make it a valuable strategic asset that investors can use to manage risk during periods of economic uncertainty. Holding gold in a portfolio enables investors to optimize the balance between return and risk.”

Top line statistics from the Q2 2011 Gold Investment Digest include:

• The gold price broke new record highs during Q2 2011, ending the quarter 4.6 per cent higher than the previous quarter.

• The average gold price during the second quarter of 2011, at US$1,506.13/oz, was 8.6 per cent higher than that of Q1 2011.

• Gold-backed exchange traded funds experienced strong net inflows adding a collective 46 tonnes of gold to a total 2,155 tonnes (worth US$104.2 billion) in holdings.

• Total central banks’ net purchases year-to-date have already surpassed the level seen in the whole of 2010. Emerging markets banks continue to be the main driving force, led this quarter by Mexico’s 100-tonne increase in its reserves.

• Physical gold delivery at the Shanghai Gold Exchange was over 205 tonnes between April and June, around 26 tonnes higher than the same period last year. This represented a 14.6 per cent increase in year-on-year tonnage, a strong performance especially considering that Q2 is not the traditional peak season for buying in China.

• Gold outperformed major bond, equity, and commodity indices in developed and emerging markets alike on a quarterly basis, in US$ terms.

• On a risk-adjusted basis, gold’s performance was only surpassed by US and global Treasury bonds.

While inflation has picked up in many countries, there is a strong debate as to whether countries will face high inflation or deflation in years to come. In that context, gold has an important role to play as an additional source of protection, due to the performance characteristics it exhibits in each scenario. A recent independent research study conducted by Oxford Economics entitled ‘The impact of inflation and deflation on the case for gold’ explores these characteristics in depth.

The full Gold Investment Digest and The impact of inflation and deflation on the case for gold can be downloaded from www.gold.org/media.