The role of gold bullion in South African balanced portfolios

D. Bradfield and B. Munro

South African Journal of Accounting Research, 2016, vol. 30, issue 2, 172-186

Abstract: The objective of this paper is to establish the structural features that gold bullion brings to South African global–balanced portfolios and to establish a strategic weight for this potential asset. We consider two methodological approaches based on a 40-year history to establish a strategic allocation weight for gold bullion. Our first approach considers the strategic role of gold bullion in South African global–balanced portfolios by using a mean-variance efficient frontier framework. We also implement a second assessment methodology that utilises a non-parametric optimisation procedure. We find from our efficient frontier analysis that the primary strategic role of gold bullion in a South African multi-asset portfolio is to add diversification and reduce portfolio risk (rather than enhance return). Whilst our mean-variance results differ slightly from our non-parametric results we ultimately find evidence in support of an allocation of 4% to gold bullion for South African balanced portfolios. This finding is consistent with findings in the international literature.

Date: 2016
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DOI: 10.1080/10291954.2015.1105546

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