"The benefits of certain portfolio hedges came into clear focus during the 2008-2009 global financial crisis and did so again during the subsequent European sovereign debt crisis, the 2018 December stock market pullback and the current Covid-19 pandemic," the WGC said.
The WGC went on to say that many tail hedges work well during crises if timed appropriately, but are technically complex investments, and can be expensive to hold systematically. Therefore, it is important to consider different metrics for assessing the benefits and drawbacks of each hedge.
"Our analysis shows that, historically, any of the hedging choices are better than a diversified hypothetical portfolio without hedging, but gold has historically been the overall optimal hedge over the long run when considering the collective portfolio metrics."
This report examines: volatility, credit, fixed income, and precious metal hedges; hypothetical portfolio: returns, volatility, risk-adjusted returns and drawdown; the benefits and drawbacks of the hedges; and the application to historical and recent market behaviour.