Gold As A Special Asset Class For Portfolio Management

Gold has been playing a pivotal role in human’s development historyof financial industry. However, gold’s monetary function has retired fromthe stage of financial history after the breakdown of Bretton Wood System.Then gold has been regarded as a kind of commodity in financial market.The financial crisis started from2007brought the market spotlight back togold’s role in financial market. This paper discussed whether gold should beconsidered as a special asset class and reached the affirmative conclusionbased on the study of gold market, correlation analysis and volatilitycomparison between gold and other asset class. Meanwhile, this papercompared the performance of portfolio with gold and without gold on thefoot of analysis of return, risk and correlation among spot gold price, stockindex and Fed yield. The contribution of gold to the portfolio has beenquantitatively proved. Finally, this paper raised some suggestion on theproportion of gold in the portfolio and some recommendation to Chineseinstitutional investors.