Gold Proves Safest as Goldman Forecasts Record: Riskless Return

By Debarati Roy
Bloomberg
Jan. 25, 2012

Gold provided the best returns of all commodities in the past five years when adjusted for volatility, and Goldman Sachs Group Inc. says the rally will continue as options traders signal no change in the metal’s relatively low risk.

The BLOOMBERG RISKLESS RETURN RANKING shows the Standard & Poor’s GSCI Gold Total Return Index produced a 6.5 percent risk- adjusted return in the five years ended yesterday, the highest among 24 commodities tracked by S&P, data compiled by Bloomberg show. Silver, the next-best performer, yielded a risk-adjusted gain of 3.1 percent, while a total-return index for all raw materials slipped 0.2 percent.

Bullion, which has seen 11 years of gains as investors sought a haven amid two bear markets in stocks and a sovereign debt crisis, also posted the safest return in the past 12 months, even as it fell from a record high to a five-month low in the second half of last year and gold investors led by John Paulson suffered losses. Goldman Sachs forecasts gold will reach a record this year, and a gauge of future price swings is near a five-month low.

“Economic problems increased globally, and gold emerged as a safe-haven investment,” Walter ‘Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “Monetary easing by China and quantitative easing in Europe and the U.S. will help it remain a store of value.”

The risk-adjusted return is calculated by dividing total return by volatility, or the degree of daily price-swing variation, giving a measure of income per unit of risk. The returns are not annualized.

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