What is the optimal weight for gold in a portfolio?

Brian Lucey, Maurice Peat (), Aleksandar Šević () and Samuel A. Vigne ()
Additional contact information
Maurice Peat: University of Sydney Business School
Aleksandar Šević: Trinity College Dublin
Samuel A. Vigne: Trinity College Dublin

Annals of Operations Research, 2021, vol. 297, issue 1, No 12, 277-291

Abstract: Abstract We show that the statistical properties of gold are negatively correlated with equities and that including gold in a portfolio will provide diversification benefits. As there is no consensus on the proportion of gold that should be included in a strategic portfolio allocation we propose a visual tool that associates a performance metric with a range of possible asset weighting schemes—a Sharpe ratio response surface. This very surface shows that a target performance metric can be achieved with a large number of different allocations. We further argue that the rebalancing approach based on the surface closest to the benchmark surface under the Hausdorrf distance metric should be selected. Using a data sample between 1990 and 2018, we find that annual rebalancing with a 44-week lookback period achieves the minimum distance from the benchmark surface.

Keywords: Gold; Portfolio formation; Asset allocation (search for similar items in EconPapers)
JEL-codes: C32 F18 F49 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10479-019-03496-5

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