• Investment Team

The Relevance of Gold as an Asset

What makes gold a strategic asset?

Gold benefits from diverse sources of demand: as an investment, a reserve asset, a luxury good and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.

Golds Strategic Role

Gold is a clear complement to stocks, bonds and broad-based portfolios. A store of wealth and, a hedge against systemic risk, currency depreciation and inflation, gold has historically improved portfolios’ risk-adjusted returns, delivered positive returns, and provided liquidity to meet liabilities in times of market stress.

1) A source of returns:

  • Gold is long considered a beneficial asset during periods of uncertainty. Historically, it generated long-term positive returns in both good times and bad. Looking back almost half a century, the price of gold has increased by an average of 10% per year since 1971 when the gold standard collapsed.

  • Gold is used to protect and enhance wealth over the long-term and it operates as a means of exchange, because it has global recognition and is no one’s liability.

  • The diverse sources of demand (consumer & investment) give gold a particular resilience: a dual-nature with the potential to deliver solid returns in good times and in bad.

2) Diversification that works

  • The benefits of diversification are widely acknowledged – but effective diversifiers are hard to find. Many assets are increasingly correlated as market uncertainty rises and volatility is more pronounced, driven in part by risk-on/risk-off investment decisions. As a result, many so-called diversifiers fail to protect portfolios when investors need them most.

  • Gold is different, in that its negative correlation to stocks and other risk assets increases as these assets sell off. The 2008-2009 financial crisis is a case in point. Stocks and other risk assets tumbled in value, as did hedge funds & real estate, which were long deemed portfolio diversifiers. Gold, by contrast, held its own and increased in price, rising 51% from December 2008 to December 2009.

3) Highly Liquid

  • The gold market is large, global and highly liquid.

  • We estimate that physical gold holdings by investors and central banks are worth approximately US$3.7 trillion (trn), with an additional US$900 billion (bn) in open interest through derivatives traded on exchanges.

  • Gold’s trading volumes averaged US$145bn per day in 2019.

  • The scale and depth of the market mean that it can comfortably accommodate large, buy-and-hold institutional investors. In stark contrast to many financial markets, gold’s liquidity does not dry up, even at times of acute financial stress.

4) Enhanced portfolio performance

  • Long-term returns, liquidity and effective diversification all benefit overall portfolio performance. In combination, they suggest that a portfolio’s risk-adjusted returns can be materially enhanced through the addition of gold.

  • Our analysis shows that investors can benefit from a material enhancement in performance if they allocate between 5% and 20% of a well-diversified portfolio to gold.

  • Broadly speaking however, the higher the risk in the portfolio – whether in terms of volatility, illiquidity or concentration of assets – the larger the required allocation to gold, within the range in consideration, to offset that risk.


Perceptions of gold have changed substantially over the past two decades, reflecting increased wealth in the East and a growing appreciation of gold’s role within an institutional investment portfolio worldwide.

Gold’s unique attributes as a scarce, highly liquid and un-correlated asset highlight that it can act as a genuine diversifier over the long term.

Gold’s traditional role as a safe-haven asset means it comes into its own during times of high risk. But gold’s dual appeal as an investment and a consumer good allowed it to deliver average annual returns of approximately 10% over nearly the past 50 years.

Overall, extensive analysis suggests that adding between 5% and 20% of gold to a portfolio will make a tangible improvement to performance and boost risk-adjusted returns on a sustainable, long-term basis.


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