Investment Strategy - March 24, 2023

Hedging Benefits of Precious Metals in Periods of Distress

Until recently, investment managers, allocators and fiduciaries have under allocated investor portfolios to the commodity and precious metals sub-asset class. Now, these investors and fiduciaries are revisiting their investment policy statements and increasing commodity and precious metals allocations to align with the current investment regime.

Many of these investors and fiduciaries understand the benefits of having inflation sensitive assets in the client’s portfolio. But many are not aware of the inherent hedging benefits precious metals affords for investor portfolios in periods of market distress - what’s referred to as tail risk protection.

In the chart below, we highlight how precious metals, including the diamond commodity and gold have performed during black swan crisis periods since 2007. These include the great recession of 2007/2008 and more recently Covid beginning in 2020.

Chart: Hedging Benefits of Precious Metals in Periods of Distress

(Source: Bloomberg, DS)

Equally interesting is the relative value of the diamond commodity compared with other precious metals. Because there is now an investable investment grade benchmark diamond commodity asset class, investors and their fiduciaries can allocate to an asset that provides low-cost protection in investor’s portfolio with potential upside performance relative to other precious metals.

(Source: DS, Bloomberg)

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Disclaimer: This report has been prepared by the Strategy Team of Diamond Standard Inc. (“Diamond Standard”). This report, while in preparation, may have been discussed with or reviewed by persons outside of the Strategy Team, both within and outside Diamond Standard. While this report may discuss implications of legislative, regulatory and economic policy developments for industry sectors, it does not attempt to distinguish among the prospects or performance of, or provide analysis of, individual companies and does not recommend any individual security or an investment in any individual company and should not be relied upon in making investment decisions with respect to individual companies or securities.
Opinions and estimates offered constitute our judgement and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. Under no circumstances does the information contained within represent a recommendation to buy, hold or sell any security, and it should not be assumed that the transactions discussed were or will prove to be profitable.