The diversification properties of gold in a Singapore portfolio.
Tan, Choon Kiat.
Ngieng, Yolande Mei Rui.
Lim, Alvin Wei Xiang.
Date of Issue2013
College of Business (Nanyang Business School)
The purpose of this research paper is to examine the diversification properties of gold and if its allocation within a portfolio of Singapore stocks will be beneficial to local investors. Adopting the investment horizon similar to that of a long term investor, the primary concern of this research is to protect the value of a portfolio and determine gold’s ability towards capital preservation and/or appreciation. The variables used are the FTSE ST ALL Share Index and the gold spot prices quotes on the London PM Fix. These variables are adopted in the tests, namely descriptive statistics, correlation, regression and portfolio efficiency tests. Our tests results have proven the null hypothesis that firstly, there is a low or negative correlation between the two variables. Secondly, gold has a low and negative elasticity which translates into significant diversifying properties. Thirdly, gold also increases the overall efficiency of the portfolio by increasing the expected returns and decreasing the risk of a Singapore portfolio. However, our test results also revealed that during periods of high market volatility and/or poor returns, the correlation between the two variables as well as gold’s elasticity increased, proposing that when there is a change in market conditions, gold will lose some of its diversifying benefits. As such, we can conclude that gold does possess diversifying benefits when allocated into a portfolio for Singapore investor; however its diversifying benefits is highly dependent and limited to the market conditions. Several recommendations are raised at the end of this research paper to aid Singapore investors to leverage on gold’s diversifying properties. Possible directions for further research are also provided to improve the accuracy and rigor of our study.
Final Year Project (FYP)
Nanyang Technological University