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For additional information, contact:

Richard Scott-Ram, Portfolio Strategist
World Gold Council
444 Madison Avenue, Third Floor
New York , NY 10022
Tel: 212-317-3840
Fax: 212-688-0537
Website: www.gold.org.

The World Gold Council is a non-profit association of gold producers worldwide, with headquarters in Geneva and offices in major markets around the world.

The Council’s mission is to maximize the offtake and retention of gold by influencing positively the attitudes and behavior towards gold of actual and potential public and private sector holders of gold.

Mr. Scott-Ram is not affiliated with, nor compensated by U.S. Global Investors.

History provides ample proof of the enduring sequence of market corrections. No single asset class is bulletproof; what might look like a winner today could perform poorly tomorrow. That’s why investment managers need to protect their portfolios by practicing asset diversification. Simply put, asset diversification means investing in different asset classes whose patterns of return differ from one another, thereby helping to reduce a portfolio’s overall risk. When one asset class in the portfolio goes down, another (uncorrelated) asset class in the portfolio (such as gold) should go up.

To take one example, the stock market is currently at an exceptionally high level and dividend yields are unusually low. The recent market behavior of Internet stocks represents an extreme example of these unusual conditions. In contrast, the gold price is considered to be relatively low today. These two developments - high stock prices and low gold prices - are captured in the chart below.

The chart displays the ratio of the Dow Jones Industrial Average to the gold price since 1885. The prices of both these investments have experienced marked peaks and valleys during major market cycles. The ratio — which peaked once in 1929 and another time in 1966 — is now at a record high level. Understandably, investors are now wondering when the third peak will occur as a result of a downturn in the stock market and/or an upturn in the gold price.

will equities move down to their mean...will gold move up?
Reversion to the Mean

The above chart compares the S&P 500 Index to gold price relative to their mean. Currently, the market's level is exceptionally high relative to its mean, while gold price is low. The question is: When will the stock market move downward (toward its mean) and when will gold move up?

Gold bullion is an excellent portfolio diversifier since it is negatively correlated to other asset classes. It can improve investment performance by increasing returns without increasing risk or by reducing risk without adversely affecting returns. It is competitive with bonds, options and Treasury bills and more liquid than venture capital and real estate. Finally, gold can protect a portfolio against economic, financial and political uncertainty.