INVESTMENT INSIGHTS BLUE PAPER | MARCH 2019

Gold in central banks’

asset allocation
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Editorial
After a long lacklustre period during the 1980s and 1990s, the price of gold has picked
up significantly since the new millennium, and central banks, after having steadily
reduced their allocation to gold, have resumed their gold purchases. This has been
particularly the case for emerging central banks, which have benefited from a strong
increase in their reserves and have been willing to diversify away from the US dollar,
reflecting the emergence of a multipolar world and the impact of the global financial
Viviana crisis. As a result, in 2018, gold represented about 13% of global central bank reserves,
GISIMUNDO
with very strong dispersion between developed central banks, historically heavily
Deputy Head
invested in gold, and emerging central banks, with much more modest holdings, but
of Institutional
Advisory often rising exposure.

Attraction to gold is explained by a number of well-known properties. Gold prices are

negatively correlated with real interest rates as well as trends in the US dollar, illustrating
in the latter case the role of gold as a form of substitute to the US currency. It also often
plays a safe-haven role during crises, and displays positive sensitivity to inflation; we
show that the relationship is actually more significant with inflation volatility.

On this basis, we propose two models to forecast gold prices, a monetary-based one
and a debt-based one, which can help us determine a medium-term fair value range
for the gold price. The variables we use in these models are policy rates and exchange
Lorenzo rates for the major countries, US real rates and credit spreads, as well as US debt
PORTELLI levels for the second model. We also confirm that the behaviour of gold depends on
Head of Cross the macro-financial environment, and that it tends to provide the best performance in
Asset Research risk-averse periods.

We then explore the relevance of gold as an asset class for central bank portfolios and
conduct portfolio simulations, using our 10-year forward-looking scenarios and asset
returns, as well as diversification-based optimisation schemes, which best emphasise
gold’s diversification potential. The recommended gold weighting is the highest, at 7%
of total assets, in the case of portfolios essentially invested in fixed income assets, as
gold shows limited correlation with these; but in all our simulations, an even modest
allocation to gold looks justified.

Eric These results should be seen as indicative, as central banks’ allocations do not respond
TAZÉ-BERNARD to a standard return/volatility framework. Defining a more precise target weight for
Chief Allocation gold depends on a number of factors, including the investor’s objectives, risk appetite,
Advisor current portfolio and expected returns on assets, but in all cases our optimisations
lead us to recommend some allocation to gold in central bank reserves portfolios.

The authors would like to express their gratitude to Philippe Ithurbide, Head of Research at Amundi, whose previous work on gold has
been integrated into this document; Sun Byoung Chae, Head of Sovereign, Institutional Business, North Asia, Amundi Hong Kong, for
his careful reading and comments; Edmond Lezmi, Head of Multi-Asset Quantitative Research, and David Lévy, Quantitative analyst
at the time of writing, for their contribution to the development of our optimisations; and Pauline Ancona, for her contribution to
documenting information on the gold market and on central bank allocation.

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Content
Gold in central bank reserves ........................................................................................................ 4
Gold and macro and financial variables ..................................................................................... 8
Gold and the US dollar..................................................................................................................................... 8
Gold as a safe-haven asset ............................................................................................................................ 9
Gold and inflation ............................................................................................................................................... 9
Gold and interest rates.....................................................................................................................................11
Drivers of gold prices ..................................................................................................................... 12
Description of our model for gold prices ..............................................................................................12
Gold returns in different economic-financial cycle regimes ........................................................13
Gold as an asset class.....................................................................................................................14
Gold’s diversification potential ...................................................................................................................14
Portfolio simulations with gold for different central bank profiles ..........................................16
Portfolio optimization based on hierarchical risk parity................................................................16
Different portfolio optimizations with CVaR constraints ..............................................................17
Conclusion and recommendations ............................................................................................20
About the authors ............................................................................................................................................24
Bibliography ........................................................................................................................................................25

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Gold in central bank reserves

Gold has been used as an ornament since the first ages of civilization, and as a currency
since ancient Egypt and Mesopotamia. Gold, silver and bronze circulated widely in the
Roman empire. Our ancestors rapidly identified its unique properties: it is a rather scarce
commodity, as well as inalterable, malleable, portable, due to its small size and high
density, and easy to recognise. Closer to us, the conquest of the Americas by Spain and
Portugal was driven by a search for gold and precious metals, a major source of wealth
for these kingdoms, before becoming a curse.

The role of gold has remained central in modern times, as the development of paper
currencies has been based on a gold anchor – ie, currencies being exchangeable against
a certain weight of gold. Western central banks have therefore historically have held
large stocks of gold. As a result of the emergence of the United States as the global
superpower, the US Federal Reserve’s holdings accounted for about two-thirds of central
bank reserves at the end of World War 2. The collapse of the Bretton Woods agreement
in 1971, with President Nixon’s decision to end the convertibility of the US dollar into gold
at a fixed rate of $35 per ounce, then led many analysts to anticipate a decreasing role
for gold in a flexible exchange-rate system. After a strong advance during the inflation
surge of the 1970s, gold prices actually remained flat for the following 20 years (see
graph below), leading major central banks to reduce their holdings of an asset that had
lost its shine and did not offer any return potential in an environment of low inflation. As
an illustration, the Banque de France sold 588 tons, or close to 20% of its gold reserves,
between 2004 and 2008.

Gold price USD per ounce

2000
1800 1825.73
1600
1400
1200
1000
800
600
400
200
0
1949
1952
1954
1956
1958
1961
1963
1965
1967
1970
1972
1974
1976
1979
1981
1983
1985
1988
1990
1992
1994
1997
1999
2001
2003
2006
2008
2010
2012
2015
2017

Source: Amundi Multi Asset, Bloomberg. Data as of 31/12/18.

“Gold prices have Trends nevertheless started to change with the new millennium, and gold prices have
picked up significantly picked up significantly since 2000. Among several explanatory factors we point to the
since 2000”. Washington Agreement on Gold which was signed in September 1999 by the ECB, the 11
national central banks of countries participating in the European currency, plus those of
Sweden, Switzerland and the UK. These institutions acted in response to announcements
of gold sales that unsettled the markets and announced that gold would remain an
important element of global monetary reserves, and that their annual sales would not
exceed 400 tons per year over the following five years. This agreement was renewed in
2004, between the same parties, with the exception of the Bank of England – which, by
the way, now only holds 8.4% of its reserves in gold.

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The 2008 crisis marked a major change in central bank behaviour, with residual sales
on the part of Western central banks more than offset by gold purchases by emerging
central banks, whose reserves increased strongly due to their external surpluses linked
to their rising share of global trade (in the case of China in particular) as well as rising
commodity prices (in the case of Russia). This change of trend in central bank net
purchases is well illustrated by the following graph.

Central banks continue gobbling up gold

800
600
400
200
Tonnes

0
-200
-400
-600
-800
1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015
Net Sales Net Purchases

Source: Metals Focus, GFMS, Thomson Reuters, World Gold Council, U.S. Global Investors.

“Emerging countries After having reached a bottom of about 30,000 tons in 2008, official gold reserves
wish to reduce their have moved back since then to about 34,000 tons. The rise in the size of reserves has
dependendy on not been the only factor behind gold purchases by central banks in large emerging
countries. They have also been willing to diversify away from the US dollar, which still
one currency”.
represents about two-thirds of central bank reserves. Diminishing confidence vis-à-vis
the US currency is triggered by economic as well as political factors. Rising private and
public debt is a source of structural US current account deficits, which may eventually
translate into a dollar depreciation, continuing the trend observed since 1971, with a
2.85% average annual depreciation of the US currency against gold since then (from
$35/ounce in August 1971 to the $1,282/ounce level observed as of the end of 2018). The
Great Financial Crisis also showed that liquidity is a major risk for all investors, including
central banks, as the threat to the global financial system at that time temporarily
limited access to the US dollar, illustrating the role of gold as a safe haven, which we
analyse in Section 2-2. This property led Alan Greenspan, then Chairman of the Federal
Reserve, to declare that “gold is money in extremis” and “the ultimate form of payment
in the world”.

From a political standpoint, it is well understandable that in a multipolar world which

is no longer dominated by a global superpower, emerging countries wish to reduce
their dependency on one currency, which has no natural substitute, as the Chinese yuan
cannot rapidly compete with the US dollar, as the growth of Chinese financial markets
does not fully keep pace with its economic expansion and as the euro is still a relatively
recent currency subject to certain weaknesses. This does show that gold is a natural
candidate for diversification strategies for central banks away from core currencies.

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Percentage of gold in reserves as of Q1 2018

80.0%
75.0%
70.0% 70.3% 67.8% 68.5%
67.2%
63.4%
60.0%
50.0%
43.1%
40.0%
30.0%
20.0% 17.6%
10.0% 8.4% 10.4%
5.6% 4.7% 3.0% 2.7%
2.4% 1.2%
0%

United States

Germany

Italy

Netherlands

France

UK

India

China

Russia

Kazakhstan

Saudi Arabia 2)

Turkey

Venezuela

Mongolia

Thailand

Indonesia

Colombia
Source: Amundi Multi Asset, based on official central bank reports.

A rise in nationalist tendencies is another cause for some countries to reduce their
dependency on the US dollar, as illustrated by President Erdogan’s statement according
to which “Gold has never been an instrument of oppression”2. In the particular case of
countries subject to international or US-imposed sanctions, limited or no access to the US
dollar is a natural source of gold purchases. The so-called “oil for gold” mechanism which
prevailed between Iran, India and Turkey allowed Iran to survive during the decade-long
period of sanctions. Likewise, sales of Russian oil to China are paid for in Chinese yuan,
which is then used to buy gold on the Shanghai Gold Exchange with yuan-denominated
gold futures contracts – basically a barter system or trade. It is quite likely that US
unilateralism under President Trump will encourage these types of transactions and lead
central banks to reduce their reliance on the US dollar. It is actually worth noting that
even within Europe, some countries wish to demonstrate a will to reduce dependence on
the anchor currency on the continent, as has been illustrated by recent gold purchases
on the part of the central banks of Poland and Hungary3, leading to a reduction in the
weight of the euro in their portfolio of reserves.

As a result, it should come as no surprise that the major buyers of gold since 2000 among
central banks have been large emerging countries: China, Russia, India and Turkey.

Starting with China, historically rather secretive about its gold reserves, it has begun
reporting its monthly gold holdings after repeated encouragement from the International
Monetary Fund (IMF). China claims to have 1,842.6 tons of gold in its reserves as of 1Q18,
up from 1,054.1 tons three years earlier, and many believe this is still far below the nation’s
actual stockpile, which is likely close to 3,500 tons. This move allows China to diversify
its reserves away from the US dollar and contributes to global investor confidence in the
Chinese currency.

Russia’s gold reserves have also increased significantly since the crisis, from 457 tons
in 2008 to a current level of 1,890.8 tons, close to the amount held by the Banque de
France and now representing 18% of Russia’s total reserves. Authorities consider gold a
key asset to face geopolitical uncertainties in a context of global tensions following the
Crimea referendum in 2014 and the subsequent imposition of sanctions.

Even though starting from a much lower base, the Turkish central bank has also been
a major buyer of gold in the recent period, purchasing an average of 11 tons per month
from May 2017, leading to a doubling of gold holdings in just one year. In fact, Turkey

2
Even though such a statement could be challenged…
3
See “The rise of central bank gold demand”, OMFIF report, January 2019.

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started as early as in 2011 to implement a policy known as the Reserve Option Mechanism
which encourages greater use of gold within the financial system. During a speech at the
Global Entrepreneurship Congress in Istanbul in April 2018, President Erdogan declared,
“Why do we make all loans in dollars? Let’s use another currency, I suggest that the loans
should be based on gold”.

“Why do we make all With 560.3 tons of gold in its reserves as at the beginning of 2018, the Indian central bank
loans in dollars?”, is one of the major holders of gold within emerging countries, even though amounts
President Erdogan, held have been stable since 2009, following a big jump that occurred that year. Holding
gold in its reserves is important as this is seen as a way to inspire confidence within the
April 2018.
population due to the solidity of its institutions. Gold does indeed lie at the heart of
India’s culture: it is an integral part of religious ceremonies, an important family heirloom,
and a common gift for grooms and brides. It is also considered by the population as the
safest investment, a protection against bad times, and Indians invest personally in gold.
A recent newspaper article4 stated that, “The most tried and tested way to survive the
market instability is through gold-based investing”.

A less significant but worth-noticing factor behind the rise of gold in central banks’
reserves is linked to the fact that in certain gold-producing countries, the central bank is
committed to buying a set proportion of domestic output at a preset price. The case of
Kazakhstan is particularly striking in this respect, with gold reserves having increased by
453% between 1Q00 and 1Q18, to reach a level of 310 tons, and absorbing a significant
share of domestic gold production. As a result, gold now represents 43.1% of total
reserves for the National Bank of Kazakhstan, a very high proportion within the universe
of emerging central banks, admittedly also resulting from the sale of part of its reserve in
US dollars which took place in 2015-16, when the central bank had to defend the Kazakh
tenge, affected by the crisis in Russia.

Despite the trends observed over the past 10 years, gold generally represents a modest
percentage of total reserves for large emerging countries with the exception of Russia
and Turkey, and a far lower one than for the most developed countries, such as the
United States, Germany, France or Italy, for which gold is the main asset in central
bank reserves.

With such a wide distribution, average figures have limited meaning, but the World Gold
Council estimates that gold typically represents an average 12.7% of central bank total
reserves, a figure admittedly biased to the upside by the historical position of the major
developed central banks. Is this just the result of history or can we find a justification
for such weight from a financial point of view? We investigate this question in the
following section.

4
The Times of India, 4 July 2018

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Gold and macro and financial variables

Gold and the US dollar
The first link we focus on, and here we are at the intersection between financial and
political considerations, is the one between gold and the US dollar. High gold prices are
typically associated with a weak dollar environments, and this is well understandable,
as the price of gold is a sort of barometer for the global financial system, whose
main reserve currency is by far the US dollar. As a result, periods of growing distrust
vis-à-vis the US currency linked either to US domestic problems – for instance, when
a US recession is anticipated or if threats to global financial stability are seen – are
favourable to gold. The Great Financial Crisis was probably been unusual in this respect:
in the midst of the Lehman crisis in October 2008, gold prices weakened in anticipation
of a global recession while the US dollar appreciated – admittedly from an historical
low – as access to liquidity in the major global currency became difficult, contributing to
a rise in its value, before a parallel and atypical strengthening of the dollar and of gold
prices at the beginning of 2009.

Gold vs US REER

1400 90
1200 95

1000 100
105
800
110
600
115
400 120
200 125
0 130
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018
Real Gold Price (constant prices 1994) US REER (RHA, inverted)
Source: Amundi Multi Asset, Bloomberg. Data as of 31/12/18

“It can be misleading One explanation behind the traditional pattern of a negative correlation between the
to look at gold prices in dollar and gold is that in times when the dollar is losing value, investors might want to
US dollars”. look for other assets via which to diversify their portfolios. Several academic papers5
have found gold to be a useful dollar hedge using data related to a number of currency
pairs. It can therefore be misleading to look at gold prices in US dollar terms, as currency
trends vs the US dollar have to be taken into account in the case of non-US-dollar-based
investors. As an illustration, applying a sensitivity analysis to global macroeconomic or
financial factors, we can confirm that some currencies, mainly the CHF and the JPY,
show a positive response to rising stress scenarios, unlike the US dollar, which means
that yen- or Swiss franc-based investors benefit from a natural diversification effect from
holding gold.

Such a diversification property has also been observed in the case of emerging currencies.
As an illustration, showed that the gold price in Turkish lira6 was rather inelastic with
respect to the external value of the Turkish currency, underlining gold’s property as a
long-term hedge for Turkish investors. We have conducted a similar analysis for the
central bank of an Asian emerging country and likewise showed that there is a negative
correlation between gold prices expressed in US dollars and trends in the local currency
against the US dollar. When the US dollar price of gold weakens, the emerging country
typically benefits from an appreciation of the US dollar against its domestic currency.

5
See, for instance, Reboredo 2013.
6
See Soytas et al, 2009

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Gold as a safe-haven asset

A number of studies have underlined gold’s safe-haven role in that it tends to be negatively
or uncorrelated with other assets in investor portfolios in times of falling markets. As
illustrated below, a strategy consisting in being long gold would systematically have
paid off during extreme market events ranging from Black Monday to the Lehman
or the Euro sovereign debt crisis in terms of a significant reduction in a portfolio’s
maximum drawdown.

Relative performance of Gold in periods of crisis

300
Collective outperformance of 735 bp
250
200
150
100
50
0
Black
Monday

LTCM
crisis

Dot-com
bubble

September
11th

2002
recession

Great
recession

Sov’n debt
crisis I

Sov’n debt
crisis II
Source: Barclays Capital, Bloomberg, Hedge Fund Research, J.P. Morgan, Thomson Reuters, World Gold Council.

Nevertheless, it seems that this property holds for equity, but not for fixed-income
portfolios. Moreover, some studies7 have shown that such a safe-haven role tends to be
observed for a limited period of time after a market crash (only 15 days, according to this
study), thereby reducing its attraction from this perspective for long-term investors that
would not pay attention to daily or weekly changes in the value of their portfolios. Other
analysts have stressed that gold’s safe-haven property was mainly linked to its official
role and the fact that central banks use it specifically to uphold confidence. As gold
is increasingly used for speculative purposes, following in particular the developments
of ETFs, such a benefit has probably declined. Investors then have to look for more
powerful arguments to support gold’s property as a hedge. This can be the case in
particular for investors wanting to protect their portfolio against adverse scenarios, in
particular in terms of inflation.

Gold and inflation

We have seen that political factors lie behind gold purchases by major emerging central
banks, but gold also has a number of attractive properties as an asset class.

“One of the most widely One of the most widely accepted properties of gold is its capacity to hedge against
accepted properties of inflation. Even though gold has indeed outperformed inflation since 1971, and spikes in
gold is its capacity to gold prices were observed during the inflationary episodes of 1973-74 and of 1980, while
trends in the 2000s have provided a counter-example, as the rise in gold prices which
hedge against inflation”.
occurred had taken place during a disinflationary environment.

Academic studies are actually not fully conclusive in this respect. Regarding the causes
of the relationship, it has been argued8 that gold is like a currency whose value cannot
be diminished by sudden large increases in its supply, as is the case for fiat currencies.
In situations of higher inflation, and assuming investors are rational, they will require an
increase in the expected rate of return of holding gold in order to compensate for the
increased opportunity cost. Inflation can also be seen as directly affecting gold prices
through a substitution effect, as expectations of increases in future prices encourage
individuals to convert their assets which have a fixed nominal return into gold9.
7
See Baur and Lucey 2010
8
Feldstein, 1980
9
Fortune 1987

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An alternative explanation has been offered10, based on the fact that gold prices will
need to follow gold extraction costs to the upside, as these tend to follow general prices
over the long term.

Gold vs inflation

2000 18%
1800 16%
1600 14%

1400 12%
10%
1200
8%
1000
6%
800
4%
600 2%
400 0%
200 -2%
0 -4%
1971 1978 1986 1994 2002 2010 2018
Gold (US$/once) OECD CPI YoY (RHA) US CPI YoY (RHA)
Source: Amundi Multi Asset, Bloomberg. Data as of 31/12/18

Academic papers have also looked at the division between long- and short-term
equilibrium relationships, as well as at the differences between US and global inflation in
their relationship with gold prices. Results seem to confirm that gold is appropriate as a
long-term hedge, but that the time it takes to return to equilibrium can be quite long11,
and that gold does not seem to be a good inflation hedge outside the US.

In the case of emerging countries, we showed12 that investors in countries subject to

episodes of higher inflation and currency depreciation are advised to protect their
portfolios through exposure to core currencies and in particular exposure to US, Euro or
Japanese bonds, which should be viewed as natural hedges for these investors.

“Inflation volatility is We have also investigated the relationship between inflation volatility and real gold
a major driver of real prices, observing a significant correlation between the volatility of five-year average
gold prices”. inflation and real gold prices. Expressed in economic terms, inflation volatility – ie, price
stability – is a major driver of real gold prices, reflecting the fact that high-inflation as
well as very-low-inflation periods are favourable for gold. Therefore, inflation volatility,
rather than the inflation trend, best explains gold prices.

Gold and inflation volatility

1000 3.0%
800 2.5%
2.0%
600
1.5%
400
1.0%
200 0.5%
0 0.0%
1968 1977 1985 1993 2001 2010 2018
Real Gold Price (constant prices 1968) US Inflation Volatility (12M)
Source: Amundi Multi Asset, Bloomberg. Data as of 31/12/18

10
Levin, Montagnoli and Wright, 2006
11
See Levin, Abhyankar and Ghosh, 1994
12
See Brière, Signori 2011

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Gold and interest rates

Another well-researched area deals with the relationship between gold price and
interest rates. As interest rates represent an opportunity cost for holding gold, a rise in
interest rates is expected to be negative for gold, an asset that does not provide any
cash flow. Once again, not all research articles are in agreement and some13 argue that it
is inflation which is the main driver of gold prices: an increase in expected inflation will
lead to higher nominal interest rates, and this pick-up in yield will have to be matched
by gold price appreciation. As a result, the relationship has to be investigated with real
rather than nominal interest rates. A very strong negative correlation has been observed
between the real price of gold and US real interest rates14 (the correlation estimate is
smaller, although still negative, with UK real interest rates). Some studies15 have also
emphasised the different behaviours vs short- and long-term interest rates, with a clear
negative relationship between gold and short-term rates. This can be explained by the
increased opportunity cost for investors, whereas the result is more open to debate
regarding long-term rates, whose rise can be interpreted as reflecting higher inflation
expectations, with a positive impact on gold.

“Our own work tends Once again, the link is not stable over time, and if the 1970s were indeed characterised
to confirm a generally by low to negative real rates and rising gold prices, and the 1980s by high real rates
negative relationship and falling real gold prices, low real rates over the decade did not prevent gold prices
from gradually drifting downwards. Still, our own work tends to confirm a generally
between gold and
negative relationship between gold and real rates, as illustrated by the graph below,
real rates”. and we believe that real rates need to be integrated as an explanatory variable in a gold
price model.

Gold (US$/once) vs Real US 10 yr Yield

2000
1600
Gold (US$/once)

1200
800
400
0
-6 -4 -2 0 2 4 6 8 10 12
US Real 10 yr Yield
Source: Amundi Multi Asset, Bloomberg, sample starting from beginning of 1980 to 31/12/18

13
Such as Abken, 1980
14
Erb and Harvey, 2013
15
Baur, 2011

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Drivers of gold prices

Description of our model for gold prices
“Gold price is driven Based on these observations and conclusions from academic papers, we can now aim at
by economic and modeling the gold price. We identify four types of drivers of gold dynamics:
financial variables”. 1. Real economic variables, such as inflation and growth;
2. Financial variables, such as interest rates, credit spread and exchange rates;
3. Monetary variables, such as monetary base and central bank balance sheets; and
4. Leverage, such as US total debt.

All of these factors affect market risk sentiment and gold returns. More specifically, the
four factors noted above tend to move together to determine the final outcome, ie, the
fair price for gold.

The following table summarises the sensitivity of gold to the four above factors and
variables according to the academic literature:

Variables Sensitivity Variables Sensitivity

Inflation (US CPI yoy) + Growth (LEI ind) +

BAA-AAA Moody’s spread + USD -

Real us interest rates - JPY +

CBs balance sheets + US total debt +

Chinese renminbi +

Source: Amundi Research.

In our monetary-based model, we applied a breakpoint estimation technique in the

cointegration framework (see Perron, Pierre, 2006) in order to evaluate:
1. Long-run relationship (fair value) and co-movement among the variables and
2. eventually some breaks in the sensitivities in specific periods in the past.

Our medium-term fair value equation (mainly driven by financial and monetary
variables) is specified by taking into account the major exchange rates and monetary
policy evolutions for the main countries, real rate (10Y Treasury) and Moody’s spreads.
Empirical evidence validates academic theory conclusions. Below, we present the
historical fair value compared to the actual gold level.

“The relationship has Over/under valuation of gold vs fair value

been historically strong”. 2100
1900
1700
1500
1300
1100
900
700
1/18/2008

1/18/2009

1/18/2010

1/18/2011

1/18/2012

1/18/2013

1/18/2014

1/18/2015

1/18/2016

1/18/2017

1/18/2018

Gold Fair Value Gold

Source: Amundi Research. As of 28/12/18.

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But, leverage and debt obviously matter for the gold price. In fact, countries that have
a propensity for indebtedness are often tempted to increase money supply or purchase
debt directly. This causes inflation and domestic currency depreciation.

“Debt and financial In such an environment, the value of domestic reserves tends to diminish and gold proves
leverage also matter for to be a good hedge. This is the main reason why the correlation between debt and gold
gold price”. is strongly positive. The enormous amount of debt at the global level will play a crucial
role for long-term investors; investigating the relationship between gold and global debt
therefore provides some useful inputs for long-term simulation.

From a long-term perspective, it is quite useful to incorporate a debt dimension into

the model. The fair value model based on debt dynamics provides a similar pattern
and conclusion vs the CB monetary-based one, confirming the strong interconnection
between debt and the recent unorthodox monetary policies put in place by central banks
in order to mitigate the negative consequences of the debt burdens in several countries.

Gold returns in different economic-financial cycle regimes

In this context, we leverage on the Amundi research department’s proprietary financial
regime tool, the Advanced Investment Phazer (see [1] in the appendix for further details)
in order to assess the behaviour of gold in the market regimes which are unfavourable
for risky assets.

In particular, using this model, we investigate asset class patterns during the correction
and contraction phases with a special focus on gold and currencies. This is the main
relevant topic for assessing the hedging capacity of gold in central bank reserves.

“In the past, gold has Behaviour of different asset classes during market correction
been an effective hedge
for GEM currencies -30% -25% -20% -15% -10% -5% 0% 5% 10% 15%
0%
and equities”.
-10% THB
EUR CHF JPY GOLD
-20% CNY
Max Loss in Negative Phases

-30% CAD
MXN
-40% INR IDR
RUB SP500
-50% ZAR
BRL
-60% KRW
-70%
-80%
-90%
TRY
-100%
Avg. Returns in Negative Phases
Source: Amundi Research, Bloomberg as of 30/11/18. Sample period: Jan 1989-Nov 2018.

Our analysis shows that gold has provided the best performance in risk-averse periods
within the universe of assets we have analysed: it delivered positive returns – around
10% on average – with limited drawdown while equities and GEM currencies recorded
much worse performances. The result confirms the strong case for gold as a hedge in
monetary reserves.

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Gold as an asset class

This section focuses on the determination of the appropriate weighting of gold in the
asset allocation of a central bank portfolio of reserves. The issue is a combination of
several elements related both to the specificity of gold as an asset class and to central
banks as investors. A number of factors do have an impact on the outcome, such as:
❚ The composition of the investor’s portfolio, and in particular the correlation between
gold and the asset classes composing the investor’s portfolio;
❚ The investor’s return objectives and risk constraints;
❚ The investor’s expected returns on gold as well as on other asset classes in the portfolio;
❚ The more specific objectives the investor is pursuing when investing in gold; and
❚ From a more technical standpoint, the optimisation scheme adopted by the investor.

The diversification potential of gold

Gold is in fact more than a financial asset, as it maintains a specific role in central bank
policies, enhancing confidence in the conduct of monetary policy and in the underlying
currency. The inclusion of gold in a central bank’s reserves portfolio is not reflective of
a typical portfolio choice, as central banks purchase gold with the intention of holding
it for the long term instead of in response to return-maximisation or risk-reduction
objectives. As a result, applying a standard return/risk framework is probably not hugely
useful with regard to the issue of allocation to gold even though it is the easiest solution.
This is all the more so as, contrary to bonds and equities, whose long-term returns can
be approximated based on solid arguments through their normative relationship with
growth and inflation, forecasting gold returns is a particularly difficult exercise.

“Applying a standard As far as risk is concerned, using volatility as a representative indicator can also be
return/risk framework misleading, as central banks tend to hold gold for the long term and rarely trade their
is probably not hugely exposure to gold, implying that volatility should more appropriately be estimated over
low frequencies. As gold’s presence in central banks’ portfolios is designed to reassure
useful with regard to
investors about the credibility of the national currency, especially in the context of
the issue of allocation financial crisis, it should be analysed during stress scenarios rather than in normal
to gold”. market environments. Using an optimisation scheme giving more importance to these
circumstances will therefore lead to a higher recommended weighting to gold in a
central bank portfolio, as noted above in the second section of this note.

Moreover, according to our methodology, which drills down into macroeconomic

scenarios to interpret financial market trends, gold tends to perform well in rising
inflation scenarios, whereas such scenarios are particularly unfavourable for bonds.
For central banks, whose portfolios are generally strongly biased towards fixed-income
assets, gold therefore offers attractive diversification. The historical simulation we
conducted over periods of high inflation actually shows that gold’s risk/return trade-off
is the most attractive in such scenarios and that the higher the investor’s risk appetite,
the higher the allocation to gold in such circumstances. This is illustrated by the following
graph, which describes the structure of optimal portfolios at different volatility levels,
constructed on the basis of return data relative to the 1973-82 period for the following
asset classes:
❚ Bonds: US and German government bonds, US corporates, emerging market bonds;
❚ Equities: US, Europe, Japan, EM;
❚ Gold.

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Unconstrained Efficient Frontier USD - Hyperinflation

100%
80%
60%
40%
20%
0%

6.5%
6.6%
6.8%
7.2%
7.8%
8.5%
9.2%
10.1%
11.0%
11.9%
12.9%
13.9%
14.9%
16.0%
17.1%
18.3%
19.4%
20.6%
21.8%
23.0%
24.2%
25.4%
26.6%
27.9%
29.2%
30.2%
inflation

US Bond German Bond USD US Corporate IG Gold

Eu Equity USD US Equity Jap Equity USD EM Equity USD

Source: Amundi Multi Asset Advisory calculation, Bloomberg, Efficient frontier on historical figures during hyperinflation period:
1973-82 sample.

At low volatility levels, optimal portfolios are dominated by fixed-income assets, mainly
German and US government, with limited exposure to equities and to gold, whereas gold
dominates optimal portfolios at high volatility levels, reflecting the attractive return/risk
profile of gold relative to other asset classes over this period of high inflation.

Gold’s diversification potential can be observed more broadly. The following matrix
illustrates the historical correlation between major equity, fixed-income assets and gold
over the long term (historical sample on the last 20 years), with blue and light blue
indicating low or negative correlations between asset classes. Gold stands out due to its
absence of significant correlation with traditional asset classes, a clear attraction from a
portfolio construction standpoint.

Correlation matrix

US Bond 1

Emu Bond
0.8
US Corporate IG
EU Corporate IG
0.6
EMBI Global IG

correlation
Eu Equity
0.4
US Equity
Jap Equity 0.2
Pac ex Jap Equity
EM Equity 0
Gold
US TIPS -0.2
US Bond

Emu Bond

US Corporate IG

EU Corporate IG

EMBI Global IG

Eu Equity

US Equity

Jap Equity

Pac ex Jap Equity

EM Equity

Gold

US TIPS

Source: Amundi Multi Asset Advisory calculation, Bloomberg, 20-year sample.

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Beyond the already-mentioned macroeconomic drivers, such low correlation may also
be explained by a different structure of investors in gold markets compared with that of
investors in traditional asset markets, even though the increased use of gold as a financial
instrument facilitated by the development of ETFs probably limits the pertinence of
this argument.

Turning to optimisation schemes, we will also demonstrate that applying portfolio

construction techniques that target diversification and shortfall risk justifies holding
gold for a portion of a pure fixed-income portfolio or for a cross-asset portfolio with a
moderate risk profile.

“Many elements All these elements make gold an asset class particularly well adapted to central bank
make gold an asset portfolios which are typically conservatively managed.
class particularly well
Let us now turn to the presentation of actual portfolio simulations to illustrate and
adapted to central bank
quantify these observations.
portfolios which are
typically conservatively Portfolio simulations with gold for different central bank profiles
managed”. We explored the relevance of gold as an asset class for central bank portfolios using
simulations and portfolio construction techniques. The general investment universe
includes different fixed income assets (including government and corporate assets)
with high-grade quality (investment grade), equity assets and gold. The currency
selected as numeraire is the US dollar. Assets not denominated in US dollars are hedged
to the US dollar in the case of fixed income assets, while equities are considered US
dollar-unhedged, in line with the most usual practice of institutional investors.

Portfolio optimisation based on hierarchical risk parity

As a starting point, we applied the Hierarchical Risk Parity methodology, in a context of
an unconstrained investor, to derive an optimal portfolio. The concept and the technique
have been developed by Marcos Lopez de Prado and do not require any estimation
of expected returns or any calculation of the inverse covariance so some caveats of
classical optimization problems are removed.

The construction process can be seen as a combination between:

❚ a clustering lens (hierarchical clustering) where similar investments are grouped into
clusters, using a proper distance metric based on pairwise correlation and
❚ a risk parity variance weighting scheme.

In the following chart, we represent the classification tree that has been used for
clustering the asset classes as a first step of the Hierarchical Risk Parity.

Classification tree
Gold Spot $/Oz
MSCI Daily TR Net Japan
MSCI Daily TR Net USA US
MSCI Daily TR Net Europe
MSCI EM USD
MSCI Pacific Free Ex Jap
JP Morgan EMBI Global Invest
Euro Corp
US Corp
US Inflation link Treasury
JP Morgan GBI US
JP Morgan GBI EMU
0.90

0.85

0.80

0.75

0.70

0.65

0.60

0.55

0.50

0.45

0.40

0.35

0.30

Source: Amundi Quantitative Research. *Classification tree used in the Hierarchical Risk Parity exercise.

Hierarchical Risk Parity: dispelling Markowitz’s curse, January 2016

16

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The correlation matrix and volatility have been estimated historically over a long-term
sample (20 years).

This results in a 2% recommended allocation to gold in a portfolio with a 3.3%

volatility and a maximum historical drawdown of -7.4%. We can consider this result as
demonstrating the opportunity of investing in gold, despite its relatively high risk level,
for an investor looking for portfolio diversification in a cross asset investment universe
with high risk aversion.

Recommended allocation over the 1997-2018 period basd on

HRP optimisation
Funds HRP

Backtest Port. Return 5.1%

Volatility 3.3%

Drawdown -7.4%

Asset class Weight

US Bond 12.7%

Emu Bond USD 17.8%

US Corporate IG 6.4%

EU Corporate IG USD 47.1%

EMBI Global IG 5.2%

Eu Equity USD 0.6%

US Equity Loc 0.9%

Jap Equity USD 1.0%

Pac ex Jap Equity USD 0.7%

EM Equity USD 0.6%

Gold 1.6%

US TIPS 5.4%

Source: Amundi Multi Asset Advisory.

Different portfolio optimisations with CVaR constraints

In order to put the allocation exercise in the context of a central bank allocation, we need
to rely on a more specific and constrained approach: for this reason, we applied portfolio
optimisation with CVaR constraints.

The CVaR portfolio optimisation process introduces the additional following constraint:
the computed optimal portfolio weights should be such that the 99% CVaR for
every simulated year is not lower than a certain amount. This approach is applied on
forward-looking scenarios of asset prices over a 10-year horizon, coherent with the
structure of expected returns obtained using our CASM model (our proprietary model
for asset class simulation) and historical variances and covariance between assets
(the same as those used for the Hierarchical Risk Parity approach).

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Historical Return Volatility Expected Return

US Bond 4.8% 4.6% 2.3%

Emu Bond USD hdg 5.2% 3.8% 2.4%

US Corporate IG 5.8% 5.2% 3.8%

EU Corporate IG USD hdg 4.9% 3.2% 2.9%

EMBI Global IG 7.0% 7.5% 4.2%

Eu Equity USD 6.0% 18.0% 7.8%

US Equity Loc 7.5% 15.0% 7.2%

Jap Equity USD 2.6% 17.3% 7.3%

Pac ex Jap Equity USD 2.2% 21.4% 7.9%

EM Equity USD 3.4% 23.2% 8.8%

Gold 5.8% 16.6% 2.7%

US TIPS 5.2% 5.6% 2.1%

*Amundi Multi Asset Advisory Calculations.

Expected return based on Amundi Asset Management CASM Model, Amundi Asset Management Institutional Advisory and Research
Teams, Bloomberg. Data as of the 7 February 2019. Macro figues as of last release. Interest rates updated as of 31 December 2018. Italian
Curve and Equity updated as of the 18 January. Spread and FX updated as of 31 January 2019. Equity returns based on MSCI indices.
One year forward views and fair values provided by Research team (macro, yields, spread and equity). Forecasts for annualised returns
are based on estimates and reflect subjective judgments and assumptions. These results were achieved by means of a mathematical
formula and do not reflect the effect of unforeseen economic and market factors on decision making. The forecast returns are not
necessarily indicative of future performance, which could differ substantially.

The expected return on gold we have assumed an expected return on gold at 2.7%, in
line with our estimate of expected global inflation. This is also consistent with the result
of our fair value model, under the assumption of an unchanged debt/GDP ratio.

We considered two examples: a central bank investing in fixed income investments only
and a more dynamic one, with a significant equity weight (10%).

The CVaR optimisation maximises the expected return under a 15% CVaR (expected
shortfall) maximum constraint. This is calculated running Monte-Carlo simulations
using Geometric Brownian Motion calibrated on the expected returns, volatilities and
correlations described above.

“The results show an The results suggest an allocaion of around 7% in gold for the portfolio excluding equity
allocation of around 7% from the investment universe, while the suggested allocation in a portfolio including
in gold for the portfolio equity depends on the risk profile (for low to medium risk in the range of 3-5%). The
low-risk allocation is comparable with the one derived using the Hierarchical Risk Parity.
excluding equity”.
Those results are linked to the expectations used for gold.

CVaR Optimization 100% Fixed Income & Gold max 10% Equity max 10% Equity (higher risk)

Expected Returns 3.2% 3.1% 3.3%

Backtest Port. Return 5.9% 5.2% 5.5%

Volatility 4.7% 3.6% 4.1%

CVaR (Expected Shortfall) -10.3% -7.1% -8.4%

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Asset Class Weight Weight Weight

US Bond 9.7% 14.0% 12.4%

Emu Bond USD 10.8% 23.7% 16.1%

US Corporate IG 23.0% 8.8% 19.4%

EU Corporate IG USD 14.7% 32.2% 20.8%

EMBI Global IG 26.2% 4.9% 11.2%

Eu Equity USD 0.0% 1.7% 1.8%

US Equity Loc 0.0% 2.1% 1.9%

Jap Equity USD 0.0% 1.8% 1.8%

Pac ex Jap Equity USD 0.0% 1.1% 1.5%

EM Equity USD 0.0% 1.3% 1.6%

Gold 7.5% 2.8% 4.6%

US TIPS 8.1% 5.5% 7.1%

Source: Amundi Multi Asset Advisory.

As the debt/GDP ratio is a relevant variable for assessing the evaluation of the decision
regarding investment in gold, we used an alternative scenario stressing this variable,
assuming a 22% increase in the debt/GDP ratio, in line with the increase expected by the
US Congressional Budget Office (CBO) for 2028. On this basis, the fair price for gold
could increase by an average 5.5% over the next 10 years. This is a scenario that will
provide support and arguments for investing in gold from a return point of view and not
only based on diversification purposes.

Timing your allocation to gold

“There is a form of We should add that once a strategic allocation to gold has been defined, central banks
reflectivity in the sense are confronted with the issue of timing of their portfolio changes towards such a target.
that gold purchases on This is an issue that applies to any reallocation decision, but it is particularly acute in
the case of gold, due to the high volatility of gold price. This leads to a strong impact
the part of a central
with regard to timing, which is further intensified by the fact that central banks’ actions,
bank will be often and particularly gold purchases and sales, are closely watched, both domestically and
interpreted as the start internationally, and likely to draw a lot of public attention. In fact, some central banks
of a trend”. were criticised for their wrong timing in purchasing gold near the market peak in 2011-12.
Moreover, there is a form of reflectivity in the sense that gold purchases on the part of
a central bank will often be interpreted as the start of a trend. This therefore leads to
upward price pressures and penalises the performance of the central bank’s portfolio. This
leads us to recommend proceeding in gradual steps, an often-justified implementation
policy, and to spread the reallocation move over long periods of time, taking advantage
of calmer periods in the market to add to positions.

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Conclusion and recommendations

Central banks have shifted from being net sellers to net buyers of gold since the 2008
financial crisis, reflecting the transition from a US-dominated to a multipolar world
in which the importance of several key emerging countries, willing to reduce their
dependence on the US currency, has increased. As an illustration, political factors have
certainly contributed to the rise in the exposure to gold in the reserves portfolios of the
CBs of Russia or Turkey. In addition to its role as a storage of value, gold is also useful
as a hedge against potential episodes of stress and against the risk of rising inflation, as
well as for its diversification potential vis-à-vis other assets.

Our analysis of the relationship between gold prices and several macro-financial variables
has confirmed the positive impact of rising inflation, rising financial stress and increasing
debt levels, as well as the negative impact of real US interest rates. This has enabled us
to construct two different econometric models, one money-based and one debt-based,
helping us to forecast gold prices, and which have confirmed that gold offers the most
attractive performance during situations of high risk aversion.

We then conducted portfolio simulations corresponding to different central bank

situations and objectives, using standard optimisation schemes as well as a Hierarchical
Risk Parity methodology, which is particularly adapted to illustrating the diversification
benefits of gold. The output of our simulations depends on the structure of the CB’s
portfolio and its risk aversion as well as assumptions on gold returns and on the
parameters of the optimisation, but they tend to justify a portfolio weighting for gold of
between 2% and 7% of total assets. The higher weighting for gold is advised for central
banks which are essentially invested in fixed-income assets, and for investors looking to
protect their portfolio against high inflation scenarios.

Any such quantification is clearly subject to potential criticism, but our work does justify
the benefits of gold in a central bank reserves portfolio and helps us identify the key
issues any investor should address before defining an allocation to gold:
❚ What is the objective? Gold will be particularly useful if limitation of stress, high
liquidity and absence of credit risk are key parameters for the central bank.
❚ What is the current portfolio structure? As already mentioned, gold tends to offer
particularly attractive diversification against global bonds, justifying its presence in
fixed-income-focused portfolios.
❚ What are the expectations regarding asset returns? The “optimal” weight of gold
will depend on what is considered to be the most likely scenario for asset markets
in the next few years, especially in terms of probability of deflation or of high
inflation scenarios.
❚ And, more generally, what is the investor’s view of the world? Any investor
concerned about the geopolitical context and about the risk of seeing the US dollar
losing its attraction as a result of the debt mountain accumulated over the past
few years might well look to gold as an important component of a portfolio from a
hedging perspective.

It is also essential to closely watch trends in the gold market, and particularly the
behaviour of other central banks, both due to the direct impact on gold prices and as
reflecting trends that other central banks may be willing to replicate.

Gold is no longer the anchor of the global monetary system and has lost its lustre
somewhat, but the mood has turned over the past 10 years. In an increasingly complex
and uncertain world in this first part of the 21st century, we can be rather confident that
gold should play an important role in the future, and particularly for central banks, which
are already its main traditional holders.

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The Advanced Investment Phazer

The Advanced Investment Phazer is a quantitative tool intended to provide a
probability-backed assessment of short-term global economic trends, as well as
recommendations – within a 12-month horizon – for the various asset classes.

Macroeconomic model for tactical allocation

The Advanced Investment Phazer provides four dimensions, on top of macroeconomic
activity indicators, along which the economic activity should be assessed. These four
dimensions are:
❚ GROWTH: mainly EPS, GDP, unemployment
❚ INFLATION: CPI, PPI, ULC
❚ LEVERAGE: total debt non-financial
❚ MONETARY POLICY: conventional/unconventional monetary policies

Factors such as GROWTH and INFLATION can help to determine the current stage of the
economic cycle, but LEVERAGE and MONETARY POLICY indicators still play a relevant
role. Indeed, high debt levels could create vulnerabilities – which amplify macroeconomic
and asset prices shocks – and raise the likelihood of a sharp economic downturn, while
MONETARY POLICY shocks have always been a key driver of economic fluctuations.

Moreover, in a world in which CB intervention is so pronounced, a strong distinction

between conventional and unconventional policy results could be crucial for assessing
global economic trends.

The analysis ends up with the identification of five phases, each of which is characterised
by a different behaviour of the four key economic activity indicators noted above and is
supportive of certain forms of investments.

The following five phases are identified as:

❚ ASSET REFLATION
❚ LATE CYCLE
❚ RECOVERY
❚ SLOWDOWN
❚ CONTRACTION

The five phases of the Advanced Investment Phazer

The four economic activity indicators are assessed in terms of how they differ from
long-term market trends. Respective historical averages of all the variables serve as
equilibrium coordinates and thus also as indicators of long-term trends.

GROWTH MONETARY POLICY INFLATION LEVERAGE

GDP SALES EPS CONVENTIONAL UNCONVENTIONAL CPI-PPI-ULC CREDIT
LEVERAGE

Asset Reflation = =

Late Cycle = = =

Recovery

Slowdown

Contraction

Source: Amundi research.

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The key characteristic of the ASSET REFLATION phase is the strong intervention of
main CBs, which completely rely on unconventional policies to clear toxic assets from
the market, spurring credit in the economy. In this phase, inflation and credit remain
below trend while growth artificially resumes, resulting with above-trend EPS.

In the LATE CYCLE phase in contrast, economic growth is almost at trend or slightly
below it, while the opposite is true for inflation. It’s a phase in which main CBs opt for
non-interventionism – both conventional and unconventional monetary policy below
trend – and the economy is unlevered.
If both growth and inflation are above their historical averages, a RECOVERY phase is
approaching. In such a situation, the economy may be overheating and levered. The
strong demand is financed by credit, which reaches an above trend level. CBs lower the
money supply in the market in order to prevent a precipitous rise in inflation.

Additionally, two “negative” phases are identified. In both SLOWDOWN and

CONTRACTION, economic activity shrinks and prices of goods and services fall
significantly, with the result being deflation in the CONTRACTION phase. CBs are active
players in both situations, but only in the CONTRACTION phase are both conventional
and unconventional monetary policies implemented. Outstanding debt is at its highest
level in both phases.

Phases and asset class recommendations

Rationale: Asset class performance varies through the five phases.

Since we believe that asset class returns should reflect fluctuations in economic activity,
we provide a basket of favourite asset classes related to each identified phase.

1 Global Equities
Asset Reflation HY
Commodities

2 DM Equities
Late Cycle IG
HY

3 Base Metals
Recovery HY
EM Equity

4 Govies
Slowdown IG
Gold

5 Cash
Contraction Govies
Gold

Source: Amundi research.

Highlights:
❚ ASSET REFLATION
Low interest rate environment weighs on fixed income asset class, which is therefore
less attractive. The search for yield means that investors tend to prefer HY bonds,
global equities and commodities, which, however, must still await some signals from
inflation to outperform.
❚ LATE CYCLE
The drop in general demand, as well as in investor risk appetite, make DM equities
and corporate bonds the most preferred asset classes.
❚ RECOVERY
Hard commodities (base metals and oil in particular), HY bonds and global equities
(EM equities best performers) are the most favoured asset classes in such a situation.
Positive sentiment in the market encourages investors to favor riskier asset classes.

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❚ SLOWDOWN
Bonds represent first choice in this circumstance, driven by low inflation, expansive
monetary policy, and uncertainty in EPS dynamics. On the corporate side, IG is
favoured, reflecting poor market sentiment.
❚ CONTRACTION
This is the best phase for cash, gold and govies. Market confidence at its lowest level,
with investors seeking to minimise drawdown rather than maximise performance.
The Advanced Investment Phazer is an analytical tool that deploys a cluster-based
algorithm to provide a probability-backed assessment of short-term global
economic trends (12 month) and eventually provide investment recommendations.
The Advanced Investment Phazer provides macroeconomic and financial regimes
by partitioning the dataset using global factors and local determinants. Therefore,
monetary policy – both conventional and unconventional – and private leverage are
considered together with economic activity indicators.

The chart below shows the historical chronology of the phases since 2001.

Investment Phazer Dynamic - Smoothed

1.0

0.8 Europe Debt

Cycle Intensity Index

Crisis and
0.6 Draghi Put

0.4
Lehman &
0.2 post-Lehman
write-off
0.0 EPS Recession
Q1 01
Q3 01
Q1 02
Q3 02
Q1 03
Q3 03
Q1 04
Q3 04
Q1 05
Q3 05
Q1 06
Q3 06
Q1 07
Q3 07
Q1 08
Q3 08
Q1 09
Q3 09
Q1 10
Q3 10
Q1 11
Q3 11
Q1 12
Q3 12
Q1 13
Q3 13
Q1 14
Q3 14
Q1 15
Q3 15
Q1 16
Q3 16
Q1 17
Q3 17
Q1 18
Q3 18
Q1 19
Q3 19
Dates
Asset Reflation Recovery Contraction Correction Late Cycle
Source: Amundi Research.

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About the authors

Viviana Gisimundo, Deputy Head of Institutional Advisory
Viviana Gisimundo is Deputy Head of Institutional Advisory, based in Amundi Asset
Management Milan. She is responsible for the quantitative solutions within Asset Liability
Management (ALM), strategic asset allocation, tactical asset allocation advice and risk
overlay for institutional clients. Viviana joined Amundi Asset Management (previously
Pioneer Investments) in 2000 as Quantitative Asset Allocation and Institutional
Advisory Analyst. In 2007, she moved to the Financial Engineering team to focus on
the development of Amundi Asset Management’s proprietary ALM platform and
CASM model.
Viviana has a Degree in Economics from Bocconi University and a Master’s in Financial
Engineering and Risk. She has attended several courses on advanced econometric
and quantitative methods applied to ALM and asset allocation. During 2009-10,
she participated in Uniquest, which is UniCredit’s internationally oriented talent
development programme.

Lorenzo Portelli, Head of Cross Asset Research

Lorenzo is senior strategist and develops forecasting models and tools to enhance
the tactical asset allocation of different cross asset and single strategy portfolios. He
advises the Macro Strategy Group and actively supports Multi-Asset Portfolios with
implemented investment strategies. He supports Amundi’s global sales teams in their
investment advisory roles with retail distribution networks, private, third parties and
institutional clients.
Prior to joining Pioneer Investments in 2003, Lorenzo held the role of Risk Manager
with Nextra Asset Management. He collaborated with Bocconi University, Pennsylvania
State University, ‘La Sapienza’ University, Cattolica University and the National Research
Council.
Lorenzo holds a degree in Economics and a Master’s degree in Quantitative Finance
and Insurance, both from Bocconi University, Milan. He is a lecturer at the Polytechnic
University of Milan and Turin University.

Eric Tazé-Bernard, Chief Allocation Advisor

Chief Allocation Advisor since 2012, Eric Tazé-Bernard joined Amundi as Head of
Long-only Multi-management in June 2008. Before that, he was CIO of INVESCO France
from 2002 to 2008, with a special focus on the Multi-management business, after having
been CIO of Multi-management at BNP Paribas Asset Management from 1999 to 2001,
and Director of Research, Strategy and Asset Allocation at Indosuez Asset Management,
and then CAAM from 1993 to 1998. He began his career as an economic consultant in the
Caisse des Dépôts Group in 1983 and joined Banque Indosuez in 1987 to become Deputy
Head of Economic and Financial Research.
Eric Tazé-Bernard was elected as a member of the Board of Amundi in 2016.
Eric holds an engineering degree in Economics and Statistics from ENSAE, a Master’s
degree in Law from Paris VI University, and a Master’s degree in Public Economics from
Paris I University. He was an Economics PhD student at the University of California,
Berkeley. He has been a lecturer in Portfolio management and in Multimanagement at
various universities.

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determinants of the price of gold, University of Strathclyde, 2006
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providers and any other professional of the financial industry
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DISCLAIMER
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 Chief Editors

Pascal BLANQUÉ
Chief Investment Officer

Vincent MORTIER
Deputy Chief Investment Officer

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