GLOBAL - Higher allocations to gold could benefit portfolios in both inflationary and deflationary scenarios, according to a new study by Oxford Economics.

The report, entitled 'The impact of inflation and deflation on the case for gold', claims that gold performs relatively well compared with other assets in a high-inflation scenario as well as in a deflationary period.

Jens Tholstrup, managing director for the UK, said: "Because of its lack of correlation with other financial assets, the report shows that gold has an important role to play in stabilising the value of a portfolio, even where the conservative assumption of a modest negative real annual return is made.

"In addition, gold offers protection against extreme events such as high inflation and financial market distress."

Oxford Economics said gold's "optimum share" of an investor's portfolio was approximately 5% in a "base long-term case for the UK" featuring 2.25% growth and 2% annual inflation - a higher allocation than seen in most mainstream portfolios.

According to the report, the optimal allocation rises in a more inflationary long-run scenario, as well as in a scenario featuring weaker growth and low inflation.

However, the analysis uses a simplified model including gold, cash, equities, bonds and commercial property only, leaving out other assets such as index-linked bonds, foreign securities and other commodities.

Marcus Grubb, managing director of investment at the World Gold Council, said: "This study suggests typical investor allocations to gold are sub-optimal.  The vast majority of investors still have little or no allocation to gold, which places significant capital at risk.

"The evidence in favour of a continuous strategic allocation to gold has been growing for some time, and gold's benefits in an investment portfolio should be reappraised."

Last week, Erste Bank's Ronald-Peter Stöferle said institutional investors would increase their allocation to gold over the coming months and cited academic research in which a 5-10% direct and indirect allocation to the asset class was recommended.