Gold As A Portfolio Diversifier Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

SUMMARY FOR ALL QUESTIONS

A presentation was held at World Gold Council by the head of investment research, Juan Carlos Artigas. Since the market collapsed in 2008, investors have been more concerned and worried about their safety and security of the investments. In order to address these issues, Gold is considered as one of the most valuable wealth creation asset class which guarantees wealth. However, there are strong arguments in favor and against Gold as an investment asset. On the positive side, Gold is considered to be the most diversifiable asset due to its negative correlation with other classes of assets. On the other hand, some argue that its value depends on the future anticipations of the investors. Before reaching to any decision, all the aspects and information need to be analyzed and then make a decision that Gold is the best asset class to invest money in or not.

ARGUMENTS FOR & AGAINST INVESTING IN GOLD AS AN ASSET CLASS

Nowadays, Gold is considered as perfect money and perhaps more than perfect money. The history of Gold is complex and long. People symbolize Gold as the sign of power and guaranteed wealth. However, different people have different arguments regarding the consideration of Gold as an asset class and whether to invest in Gold or not.

ARGUMENTS IN FAVOR OF INVESTING IN GOLD

Some of the most compelling arguments for investing in Gold are as follows:

The values of all asset classes fall in times of financial uncertainty except for Gold. When the world tensions arise, Gold is the only asset class which outperforms all other asset classes and people go towards it to invest in Gold and secure themselves.
Gold is also considered as one of the best hedges against inflation because when the cost of living increases the price of Gold also increases.
Throughout the previous era, people considered it as an asset class because it maintained and preserved the wealth of people unlike paper currency, coins and other asset classes. The value of Gold has been maintained throughout the ages.
In some major countries of the world such as India, Gold is embedded in the culture of the people because of the emerging market economies and in turn, this has boosted the demand for Gold in most of the countries.
The most important argument in favor of considering Gold as the most suitable investment asset is that the negative correlation of Gold with other classes of assets such as stocks. This helps the investors with portfolio diversification because investment in Gold helps the investors to reduce the overall volatility and risk of the portfolio.

ARGUMENTS AGAINST INVESTING IN GOLD

The most compelling arguments against investing in Gold are many which include:

People investing in Gold to increase their overall returns, however, there are hidden costs related to the guaranteed buy-back of the purchases of Gold.
If the value of gold does not goes up then the gain is only nominal and there is no actual increase in the buying power.
People also have the room to manipulate Gold and Gold is highly prone to manipulation. By suppressing the real value of Gold, most people can boost their paper money.
There is no leverage to build wealth with Gold and also there is no source of financing with the investment in Gold.
The equilibrium of any market is decided by the forces of demand and supply; however, in the case of Gold the future anticipations of the investors regarding Gold determine the state of Gold market than the forces of supply and demand.

QUESTION 2

MEAN, STANDARD DEVIATION & CORRELATIONS OF FOUR MAJOR ASSET CLASSES

From the calculations performed in the spreadsheet, we can see that the US large capital stocks is one of the asset class which has the highest means return and the highest standard deviation. This also shows the tradeoff between risk and return, that is if you take high risk you get higher returns. Stock is one of the most risky investments and that is the reason its returns are high but its standard deviation which is the volatility of its returns is also high. If we look at the correlation table, then we can see that the correlation..................................

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