We recently explored the case for holding physical gold in multi-asset portfolios. In four equity market sell-offs since 2007, physical gold not only generated positive returns but significantly outperformed equities during risk-off events.
In periods where an acceleration in inflation drives the risk-off event - like the 1970/80s - physical gold proves to have even stronger diversification benefits vs equities. Better still, gold equities significantly outpace the physical gold price proving to be true portfolio diversifiers during periods of high inflation.
The case for holding gold equities in non-inflationary-driven risk-off periods also holds, with clear outperformance of gold equities over the broader market as the recovery phase takes hold. What we do find is the outperformance is almost double what has been observed during non-inflation-driven risk-off periods.
It is not out of the question in the current environment, with the strongest uptick in inflation (US) since the 1970s, that we get an inflation-driven risk-off event over 2022/23.
Gold equities that offer a combination of both production and earnings growth tend to perform the strongest through the cycle. Amongst the major producers in Australia, Evolution Mining (EVN) and Northern Star (NST) (Wilsons Australian Focus List Member) have significantly outperformed the largest listed gold company Newcrest (NCM).
Both EVN and NST have demonstrated superior rates of production growth, operational consistency and capital discipline – factors that have contributed to total returns outstripping NCM by 7x and 10x respectively over the past five years. In this week’s report we cover:
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John is a leading investment strategist with 20 years experience.