We caution that history does not always repeat and the perceived defensive premium of the dollar will vary over time but we illustrate the potential benefits of this approach below by comparing the relative performance of gold priced in dollars versus gold priced with an equally weighted basket of dollars, euro, yen and pounds, over four recent periods of market stress. In each case the outperformance of the diversified gold strategy was driven by its smaller, short dollar weighting and hence it’s reduced exposure to a strengthening dollar. Ultimately for investors that do not have a strong view on the dollar we believe that such a diversified gold strategy represents an efficient approach to gold investing that may also offer the benefit to investors of lower drawdowns during periods of high risk aversion.
5/1/2012-8/31/2012Soaring bond yields in the European periphery to record highs underscored wide spread pessimism amongst investors over the prospects for the survival of the European Union. The period saw steep falls in the S&P 500 as well as a broad strengthening in the dollar versus most currencies especially against the euro.
8/1/2011-11/30/2011
Continued stalemate in Congress over the debt ceiling negotiations and the ensuing S&P downgrade of US debt both combined to unnerve investors resulting in a so-called “risk-off” environment, a sharp decline in the S&P 500 and a sharply rising dollar. The European Union was the focus of concern as the debt crisis intensified amid sharp differences from European governments over the appropriate policy response.
1/29/2010-5/31/2010
The revelation of the true extent of the Greek government’s indebtedness caused a large flight of capital out of the European Union in the US as investors reevaluated the risks of a breakdown in the common currency.
8/1/2008- 12/31/2008
The failure of the first Troubled Asset Relief Program (TARP) vote in Congress and the Lehman bankruptcy in September 2008 triggered a sharp 40% decline in the S&P and a dramatic flight to quality as investors sought the safety of US government treasury bills.
Source: Bloomberg LP; Treesdale Partners calculations; Gold Basket is gold financed with an equally weighted basket of USD, Japanese yen, European euro and British pound – daily rebalanced. Past performance is not indicative of future performance. This article was written by Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR), AdvisorShares Gartman Gold/British Pound ETF (GGBP), AdvisorShares Gartman Gold/Yen ETF (GYEN) and AdvisorShares International Gold ETF (GLDE), share their thoughts about the gold space.