Gold Proving Safest Commodity as Goldman Forecasts Record: Riskless Return

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 Europeand 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.  “People are still very under-invested in gold, and so there is a huge scope of that increasing,” said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich who was the most accurate precious-metals forecaster tracked by Bloomberg in the past two years. “Gold has become a mainstream alternative investment, so rather than a store of value, it’s become a reflection of flows,” said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which manages $1.3 billion. “It is not immune to volatility.”  David Einhorn’s Greenlight Capital Inc. said in a Jan. 17 letter to investors that the fund continues to hold gold and gold-mining equities because of concern that global fiscal and monetary policies “tempt fate.”

George Soros, 81, the billionaire founder of Soros Fund Management LLC, increased his stake in SPDR Gold Trust, an exchange-traded fund tracking the metal, to 48,350 shares as of Sept. 30 from 42,800 and added options, according to Securities and Exchange Commission filings. Soros, who called gold the “ultimate asset bubble” in 2010, reinvested in gold shares after selling 99 percent of his holding in the first quarter of last year. China overtook India in the third quarter as the largest gold-jewelry market, according to the World Gold Council. The country’s consumption will continue to grow this year, according toAlbert Cheng, the Far East managing director at the council. Mainland China imported a record 102.8 metric tons in November from Hong Kong, trade data on Jan. 11 showed. “Everybody is conditioned to think of returns in a winner fashion,” said Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp. “During times of crisis, volatility really spooks people, especially if it is in gold, as people look at it as a store of value. However, I believe we have put in a bottom for gold so we will see gold continue to climb.”

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