Gold market analysis and the influence of commodities on portfolio diversification

The objective of the Diploma Thesis entitled Gold market analysis and the influence of commodities on portfolio diversification is to provide an insight to commodities as an investment asset class. This goal is tackled by the first and the second chapter. The first chapter provides theoretical support for commodities as a distinct asset, whereas the second chapter is focused on investors opportunities to obtain economic exposure to commodity assets on current financial markets. When introducing the commodity products, main focus is set on the gold market. The second objective of the Diploma Thesis is to analyze the gold market and gold added value for the investors. The structure of both supply and demand for gold is analyzed. Demand and supply are identified as the main gold price drivers. The thesis confirms that the main added value of gold as an asset lies in its addition to a portfolio of capital assets. Gold significantly improves diversification of the portfolio, protects the portfolio from inflation as well as from the economic event risk. On the contrary, in comparison to capital assets gold is not an perspective stand alone investment. The last objective of the thesis is to analyze the diversification potential of commodity indexes within a portfolio context. The last chapter is devoted to this objective. The chapter introduces commodity indexes as an investible product and analyses the influence of a selected commodity index being added to a portfolio of capital assets on the efficient investment frontier. It is shown that not only is the commodity index not a good diversification tool but the investors would be better off by selling it short