Abstract

Prior studies have shown that investing in gold can, to varying degrees, provide a hedge against inflation and some of the negative effects of economic recessions. Investors wishing to invest in gold have a number of choices available to them, which for even the most sophisticated investors can be a daunting task. The purpose of this thesis was to assess whether there are differences in the performance of three investments in gold in order to help individual investors choose the best way to gain exposure to appreciation in the price of gold. We used a single-factor ANOVA model to compare the Sharpe ratio, excess return on value at risk, the conditional Sharpe ratio, and the modified Sharpe ratio in order to assess the difference in mean risk-adjusted performance across three samples of gold exchange-traded funds, mutual funds and stocks. We cannot be certain that investors have a preference for the higher moments, such as skewness and kurtosis, of return distributions; but to the extent that they do, the modified Sharpe ratio, as a measure of risk-adjusted performance, captures these moments, and for the selection of gold investments studied, reveals differences in performance that would be missed by the other measures. In particular, we found that mutual funds outperformed both exchange-traded funds and stocks on a risk-adjusted basis. Investors wishing to gain exposure to appreciation in the price of gold should therefore favour gold mutual funds over both gold ETFs and gold stocks.