Safe-haven gold accounted for just 1% of global assets under management by the end of 2010 despite its wide recognition as a low-risk investment tool, according to the latest report of the World Gold Council, underscoring investors? tilt towards some higher-risk products that they believe offer better returns. ?Contrary to popular belief, gold is still an under-owned asset…. Under-allocation to gold is even more pronounced among institutional investors, many of which only have gold exposure as a small component within a broader commodity index,? the report said, pointing at the huge unexploited potential of gold as an investment tool.

?Furthermore, investors who choose to access gold through a commodities index are not only under-allocated but they don?t benefit from the risky management advantages gold can offer,? it said. For instance, for an investor with a 5% allocation to a commodity index such as the S&P Goldman Sachs Commodity Index or the Dow Jones-UBS Commodity index, the effective exposure to gold can range between 0.1% and 0.4%.

Fixed income led the pack with a 48.7% share in investors? total holding of $146 trillion globally as of December 2010, followed by equities (37.2%), money markets tools (9.1%), alternative investments (4%) and gold (1%), the Council said.

However, gold?s haven appeal still retains lustre as the wide geographical spread of demand as well as supply still makes it less vulnerable to a crisis in a particular continent, and it?s also less volatile than equities, the report said. India, the world?s largest gold consumer, and China account for around 49% of global demand for gold, creating a fair balance between the East and the West and ?reducing the traditional dominance of developed countries?.

?Given that gold mine production is spread around the globe, gold?s price performance tends to be less subject to geopolitical and other idiosyncratic risks than many commodities,? it said. Recycled gold, which accounts for around 40% of global annual supply, also continues to enter the market, further mitigating shocks to the supply chain, it added.

Gold?s average annual volatility at 14.6% in the past nearly 25 years, a long-enough period to gauge its performance, fairs well against 20.5% for other commodities, 17.7% for developed worlds equities and 23.9% for emerging market equities, the Council report said, quoting various sources. Gold volatility would be even lower, compared with an individual index component, as these indices gain from diversity and offset effects by holding multiple assets.

?Gold gives investors much-needed diversification not only during normal economic periods but especially in periods of economic and financial turmoil. For investors, this translates into enhanced portfolio performance and is central to the case of gold as a foundation asset,? the Council said.