The current low-interest rate environment has forced investors to turn to alternative assets in search of higher returns. However, the high volatility and low liquidity of these means that today, gold is the most attractive of these alternative investment assets.
In its latest Investment Update report, the World Gold Council finds that many investors are turning to alternative investment assets given the poor performance of traditional investment assets, which are weighed down by an environment of very low-interest rates.
According to Greenwich Coalition and Mercer data compiled by the World Gold Council, investors are increasingly betting on alternative assets such as private markets (unlisted companies), tangible assets (stamps, coins, works of art, collectibles), and infrastructures.
It is estimated that, within three years, the percentage of these alternative assets in the portfolio of investors will grow to represent a third of the total.
As the World Gold Council points out, “most of these alternative investment assets have historically contributed to achieving the desired profitability, but they have much less liquidity . This, together with the flight from higher quality fixed income assets, causes an increase in volatility and a decrease in the liquidity of the investment portfolio, something that must be taken into account in an environment of high inflation”.
As regards liquidity, the 2008 financial crisis highlighted the difficulties that exist when it comes to getting rid of some investment assets at times when capital is needed.
This problem is common to alternative investments such as private market companies, cryptocurrencies, collectibles, or real estate.
Faced with this lack of liquidity, the World Council report defends the role of gold as the most liquid asset with which to achieve a balanced investment portfolio and satisfy the liquidity needs of investors.
As can be seen in the graph, this liquidity of gold derives from the enormous size of its market, which is close to 150,000 million dollars a day.
Only the shares of the S&P 500 index of the US stock market and US Treasury bonds exceed the precious metal in daily volume.
The other problem that investors have to deal with is volatility. The attached chart shows how both stocks and the vast majority of alternative investment assets have much higher volatility than gold.
The classification of the most volatile assets of the last five years is headed, as it could not be otherwise, by bitcoin, with an annual index close to 75%.
On the contrary, gold is presented as one of the least volatile assets, which is why it is a highly recommended element to include in any investment portfolio.