The Ideal Portfolio: Gold, Sugar, Bunds & Francs

Imagine your investment adviser proposing a sweetened barbell portfolio of gold, white sugar, Swiss francs, and German bunds in 2007 with a 5-year time horizon.   You would of likely canned the wacko faster than they sold Nike stock last week.   If only you had listened!

The Economist’s Daily Chart has an interesting piece showing the number of days selected assets made new highs and new lows from Q2 2007 to July 1, 2012.   Interestingly, gold has made a new high 10 percent of trading days over the past 5 years.

Here’s the text,

ONE of the few good things about the financial crisis has been its gifts to headline writers. As the chart below shows, new records have been set with bewildering frequency. A jittery investor may shift money out of Italian government bonds and into assets perceived as safer, such as gold bullion. When lots of people have the same idea the price of gold shoots up. At the same time Italian government debt needs increasingly generous bond yields (which move in the opposite direction to bond prices) to entice investors. Over the last five years this kind of risk aversion has seen gold hit record values on almost 10% of trading days. Economic gloom might be expected to feed through to commodity prices, but optimism about economic growth in Asia has boosted them. With perfect hindsight, an ideal portfolio in 2007 would have been stuffed with gold, white sugar, Swiss francs and German bunds. Anyone holding that mixture of assets when the crisis began would have seemed either eccentric or confused.

(click here if chart is not observable)

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