Gold Quoted at Paris and the Diversification of French Portfolios from 2004 to 2009

Abstract

This paper aims to study the role of gold quoted at Paris (physic and paper) in the diversification of French portfolios on the period from 2004 to 2009 including the financial crisis period 2007-2009. The results show that the correlation of gold with stocks and with bonds is very weak. At the same time, the inclusion of gold quoted at Paris in French portfolios reduces their risk and increases their return. Consequently, gold improves significantly efficient frontiers and performance of these portfolios. The proportion of gold introduced in order to minimize portfolio risk is between 2% and 5%. We note also that physical gold (ingot and napoleon coin) is more efficient than paper gold (gold mutual funds) in portfolio diversification. At the same time, gold (both physic and paper) is more efficient in stock portfolios than in bond portfolios.

Keywords: gold, Paris gold market, portfolio diversification, correlation coefficient, efficient frontier, portfolio performance

JEL Classification: G1, G11