There are a few interesting observations from the chart. Firstly, the large variability in the drawdowns incurred by each of the strategies. In each case the difference in the drawdown performance of a given strategy relative to Gold/USD was a function of the performance of the financing currency relative to the dollar.
For example the large outperformance of Gold/GBP and Gold/Euro in 2008 during the height of the credit crisis was driven by the steep falls in the value of both the pound and euro versus the dollar. Secondly despite the variation in the drawdowns of the gold strategies, the troughs in their drawdowns broadly occurred at the same time i.e. despite the differences in financing currency the gold risk factor was still a key determinant that impacted drawdown performance.
Thirdly the troughs in the drawdowns of the gold strategies tended not to coincide with the trough in the S&P drawdown indicating a certain degree of independence in the risk factors that drove their relative performance. Finally we note that the Gold/Basket had consistently similar or better drawdown performance relative to Gold/USD. This should be unsurprising as we have noted in previous commentaries , a gold position financed with a number of different currencies would be expected to gain some diversification benefit from the diversity in financing currencies versus a gold position financed entirely with dollars.
The key takeaway perhaps for medium to long term gold investors that have an allocation to gold in their portfolios would be to consider using a “currency basket” financing strategy when making gold purchases which can potentially provide diversification benefits to investors which feed directly into better drawdown performance during periods of high market stress.
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.