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Divergence Increases Between Traditional 60/40 and ‘Modern’ Allocation (including gold)

GOLD

Executive summary

  • In the past few weeks, we have seen that support for Gold has remained strong despite the dramatic fall in negative-yield debt, the rise in real rates, USD strength and the fall in annual change in liquidity.
  • Gold has historically acted as a ‘zero-beta’ asset that generally rises in periods of geopolitical uncertainty and market selloffs.
  • The persistence of inflation has led to a significant divergence between the traditional 60/40 asset allocation and the ‘Modern’ allocation (which includes gold).

Link to full publication:


Gold - Modern Allocation.pdf


The chart below shows the performance of the classic 60/40 equity bond portfolio and the ‘Modern’ allocation, in which we swap 20% of the bond allocation for gold (60/20/20 equity bond gold portfolio).


The 60/20/20 portfolio currently trades at a 10-point premium over the classic 60/40 portfolio (indexed in January 2018) as gold prices have remained firm in the current environment (relative to LT government bonds).

Source: Bloomberg/MNI.

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