A brilliant contribution to portfolio stability
Gold is not only decorative, it is also traditionally regarded as protection against crises and inflation. Although the precious metal does not yield interest, it has been recognized worldwide for thousands of years as valuable and value-preserving. In the DJE Gold & Stabilitätsfonds, it serves as an anchor investment that is particularly effective in uncertain times. In addition, gold has gained around 26% since the beginning of the year.
The fascination of gold
There is hardly any other asset class, apart from gold, that has enjoyed stable demand for thousands of years. Gold was and is in demand, gold served as the foundation for national economies until the gold standard was abandoned in 1971, and even today central banks are among the largest buyers of gold alongside the jewelry industry. Central banks from emerging markets in particular have been actively buying gold for some time. The US Federal Reserve is the largest holder of gold, with over 8,100 tons of gold still in its vaults today. It is followed by the German Bundesbank, which has more than 3,300 tons in storage.
On average, the jewelry industry accounts for around 40% of global demand for gold - around two thirds of which comes from China and India alone. In the second quarter of 2024, this figure was over 44%, as the share of central bank purchases in particular has fallen. The precious metal in jewelry form is mainly given as gifts for holidays and weddings. Demand is therefore seasonally higher in the second half of the year. During this time, the jewelry processing industry prepares for the Christmas business, the Chinese National Day and the Chinese New Year. The end of Ramadan also drives demand for gold. Gold ETFs and ETCs have been the third major buyer of gold for some years now. They account for around 3,100 tons of gold holdings.
Gold as a stabilizer in times of crisis
The past has shown: In times of great uncertainty, gold was not only in demand, but was able to significantly outperform the global stock market or other alternative asset classes. By way of comparison: in the first year of Russia's war of aggression against Ukraine, while inflationary developments continued, gold rose by 11%, while the global share index MSCI World fell by -6%. The gap was even more pronounced during the subprime and financial crisis: gold rose by 34%, while global equities fell by -34%*.
What drives the price of gold?
The price of gold is not only determined by supply and demand. Like many other commodities, gold is increasingly driven by market conditions. Historically, gold has shown a very strong inverse correlation with real yields and the US dollar. This means that when real yields and the US dollar are high or rising, this often has a negative impact on the gold price. In phases of falling key and real interest rates and a weakening US dollar real interest rate, the price of a troy ounce of gold generally rises. This is because gold is seen by many investors as a "safe haven" for their money in difficult times. It does not earn interest, but carries virtually no default risk and is highly liquid - there are always buyers for gold.
Diversification and absolute return approach
If you are thinking about making your portfolio weatherproof, for example with a view to uncertain market situations or political crises, diversification with gold is a good idea. The DJE Gold & Stabilitätsfonds makes use of the positive characteristics of the precious metal gold in its aim to achieve the lowest possible volatility and solid performance in all market phases. The fund follows the absolute return concept and combines gold and precious metals, equities as well as government and corporate bonds with high credit ratings. Fund manager Stefan Breintner and his team combine the various asset classes flexibly according to his expectations of the market situation and without reference to benchmark indices. The fund's sources of income are thus fed by interest on bonds, dividend distributions, possible share price gains and the development of gold and commodity prices.
The fund currency is the Swiss franc, which has historically been less volatile than other major currencies. In addition, the Swiss franc provides additional diversification against other major currencies such as the euro and the US dollar. In general, other currencies can be hedged using derivatives if necessary. In principle, the fund is managed from the perspective of a euro investor.
Gold and bonds - defensive character
The fund's gold holdings can account for up to 49% of the fund assets. The special feature here is that the DJE Gold & Stabilitätsfonds actually owns up to 30% of the gold exposure in the form of physically deposited gold bars. These are stored in vaults in Switzerland and the holdings are checked regularly. Gold has a historically low correlation with other asset classes and is therefore well suited to diversification in order to offset possible fluctuations in the equity or bond market. In the long term, gold is characterized not only as a safe haven in turbulent capital market phases, but also as a hedge against inflation.
Bonds reinforce the defensive character of the fund. The bonds in the fund have an average credit rating of A- and are therefore considered to be of high quality (investment grade). The focus is on high-quality corporate bonds from Europe and the USA. Fund manager Stefan Breintner generally keeps the bond allocation at around 30%. Against the backdrop of key interest rate cuts in the USA and Europe, the modified duration fell slightly to 5.0%. The bonds held yielded an average return of 4.1% as at the end of October. Together with the share of around 30% in gold, around 60% of fund assets are thus invested in defensive asset classes.
Selective investment in equities
In order to benefit from potential market opportunities, the fund naturally also invests in equities. For the equity portfolio, the fund management invests primarily in global equities from defensive sectors. Although technology is the largest sector, accounting for around 19.3% of the equity portfolio, it is underweighted compared to the technology component in the MSCI World Index (just under 25%). Healthcare, on the other hand, is overweighted with a 14.3% share of the equity portfolio compared to 11.7% in the MSCI World. When selecting companies, the fund management pays particular attention to ensuring that the companies are active in structurally growing markets, have low debt and a high free cash flow, pursue an attractive shareholder value approach and also meet DJE's sustainability criteria. The equity allocation is currently reduced to 38%.
Gold: a long-term investment decision
In the short term, it should be noted that gold has staged an extraordinary rally, gaining around 26% since the beginning of the year. The price of the troy ounce has come back somewhat from its last all-time high of just under USD 2,800 and now stands at around USD 2,600. An appreciating US dollar could mean some headwind for the precious metal, and the price of the troy ounce could fall to between USD 2,400 and USD 2,500. However, the major investment banks are forecasting a further rise in the price of gold in the range of USD 2,800 to 3,000 per troy ounce by mid-2025. Accordingly, the fund management sees further setbacks as an opportunity to buy more.
In the medium to longer term, falling key interest rates should provide significant support for the gold price. Added to this are concerns about inflation, which is still not over, as well as possible impending trade conflicts. The expected further increase in the US budget deficit should also provide structural support for the gold price. Geopolitical conflicts such as the crises in the Middle East or the war between Russia and Ukraine are also likely to continue to make gold a valuable risk hedge.
In the long term, however, the fundamental investment decision is to make gold a permanent portfolio component. The main reason for this is obvious: gold can make a significant contribution to the stability of a portfolio.
*Source: Bloomberg, DJE Kapital AG, own calculation. Ukraine war period 01.01.2022 to 01.02.2023. Subprime/financial crisis period 01.09.2008 to 01.09.2009. MSCI World and gold price/fine ounce in US dollars.
Note: This is a marketing advertisement. Please read the prospectus of the relevant fund and the Key Investor Information Document (PRIIPs KID) before making a final investment decision. These documents are available free of charge in German at www.dje.de under the fund in question. A summary of investor rights is available free of charge in German in electronic form on the website at www.dje.de/zusammenfassung-der-anlegerrechte free of charge. The funds described in this marketing announcement may have been notified for distribution in various EU member states. Investors should note that the respective management company may decide to cancel the arrangements it has made for the distribution of the units of your funds in accordance with Directive 2009/65/EC and Art. 32a of Directive 2011/61/EU. All information published here is for your information only, is subject to change at any time and does not constitute investment advice or any other recommendation. The sole binding basis for the acquisition of the fund in question is the above-mentioned documents in conjunction with the corresponding annual report and/or semi-annual report. The statements contained in this document reflect the current assessment of DJE Kapital AG. The opinions expressed may change at any time without prior notice. All information in this overview has been compiled with due care in accordance with the state of knowledge at the time of preparation. However, no guarantee and no liability can be assumed for the accuracy and completeness.