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Effective portfolio diversifier
Gold's ability to serve as a portfolio diversifier is due
to its historically low-to-negative correlation with stocks
and bonds. Some of gold's investment attributes are shared
with traditional portfolio diversifiers, which include non-US
equities, emerging markets securities, real estate investment
trusts, and domestic and foreign bonds. However, over the
last ten years, gold is the only one of these diversifiers
that has been negatively correlated with the Standard &
Poor's 500 Index, which is widely regarded as the standard
for measuring the stock market performance of large capitalized
US companies. All forms of investment carry some degree of
risk. Holding gold directly also has risks. However, including
gold in a well-balanced portfolio can help diversify risk.
Low credit risk
Gold does not depend on a promise to pay on the part of any
government or corporation, as is the case with investments
in money market instruments as well as the corporate and government
bond markets. Gold is not directly affected by the economic
policies of any individual country and cannot be repudiated,
as is the case with paper assets. Gold is not subject to the
risk of default or bankruptcy. Gold cannot be created at will
as can paper-backed assets.
Hedge against inflation
Gold is often purchased as a hedge against inflation and currency
fluctuations because, historically, it has tended to maintain
its long-term value in terms of purchasing power. Investors
should be aware that past maintenance of gold's long-term
value provides no assurance that gold will maintain its long-term
value in the future.
Tactical
Economic outlook
The economic forces that determine the price of gold are different
from the forces that determine the prices of most financial
assets. For example, the price of a stock often depends on
the earnings or growth potential of the issuing company or
the confidence investors have in its management. The price
of a bond depends primarily on its credit rating, its yield
and the yields of competing fixed income investments. The
price of gold, however, depends on a number of different factors,
which include the strength or weakness of the US dollar, the
rate of inflation and interest rates and the current political
environment.
Gold industry fundamentals
The price of gold also depends on the supply of and demand
for gold. For a detailed description, please refer to “Gold
Supply and Demand” in the prospectus.
Practical
Compared to other non-traditional diversifiers
In the search for effective diversification, investors have
begun to turn to a variety of non-traditional diversifiers.
These non-traditional diversifiers include hedge and private
equity funds, commodities, timber and forestry, fine art and
collectibles. Gold has one or more of the following advantages
over each of these non-traditional diversifiers: greater liquidity,
lower risk and lower management and holding costs
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