Financial markets are vulnerable to unpredictable events that shake the international geopolitical stage. The most recent example was the outcome of the UK referendum on European Union membership. As noted by the International Monetary Fund (IMF) in its Global Economic Prospects report, “the negotiations on post exit arrangements would likely be protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increacing financial market volatility.”
This and other political uncertainties in the developed world, such as the outcome of the US presidential elections or the fact that Spain has been unsuccesful in defining its government, result in the need for diversification of portfolios. That is, lay investor’s eggs in several baskets and favor safe-haven assets.
2016 is on track to be the year of gold. In the first three months of the year, gold increased in value by 22%, resulting in its best quarter in 30 years. During this period, deposits of listed products invested in this metal reached 22 billion. Just in the week following the UK’s referendum, investors allocated $2.5 billion to ETPs with Gold exposure. While European equities have had a negative year. The heightened noise we see in the markets is likely to continue so adding a hedge such as gold, could dampen volatility.
Beside the temporary circumstances, there are a number of structural factors ensuring gold’s long-term price stability, such as the proliferation of bonds with negative performance as well as the pace of the US interest rates.
One of the most relevant funds in this area is the BGF BlackRock World Gold Fund. In order to maximize the total profits of their investors, this fund invests more than 70% of its total assets in shares of companies around the world whose main activity is the extraction of gold. The fund may also invest in shares of companies whose predominant economic activity is the mining of other