The case for a structural allocation to gold in portfolios

We explore gold’s effectiveness in hedging risk and the rationale for a structural allocation in multi-asset portfolios.

Gold has evolved from a physical store of wealth to a globally traded financial asset, with its price historically showing a strong inverse relationship with real yields. However, this relationship has weakened since 2022, as geopolitical tensions (e.g. Russia-Ukraine war), central bank reserves diversification, and rising Eastern demand (especially from China and India) have become dominant price drivers.

Looking ahead, falling real yields, currency movements, and geopolitical risks are expected to continue influencing gold prices.

In this brief paper, we will not delve into the characteristics and macro drivers of gold but instead focus on its effectiveness in hedging geopolitical and inflationary risk, and a refresher on whether it makes sense to have a structural allocation in diversified multi-asset portfolios.

Our findings suggest that gold brings a range of benefits to a multi-asset portfolio. The key is to view gold in the broader context of portfolio construction. Its inclusion should be deliberate and aligned with the risks it is meant to offset.

Read the full paper here: The case for a structural allocation to gold in portfolios

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