Gold remains relevant as a portfolio diversifier even though positive correlations with risk have become more frequent in recent years, Deutsche Bank's Research Analyst Michael Hsueh reports.

Gold positive correlation with risk is not new

"We think reserve managers are likely to step in as buyers on Gold weakness, though ETF investors may be less prepared to do so while realised volatility remains high. Our assessment has been that elevated official demand is the primary reason behind Gold outperformance versus financial fair value. We expect this to continue for the foreseeable future, supporting a strategically bullish bias and upside to our average price forecast of USD 4,000/oz for next year."

"Also, a moderation in Gold price strength may help to revive suppressed jewellery demand. Jewellery demand is on track to be down by 300 tonnes, or -18% from last year. The relatively low supply of recycled Gold compared to 2009-12 may also rise, since the expectation of further gains has held consumers back from liquidating according to the World Gold Council."