Why gold deserves a place in diversified portfolios

Diversification has become harder in recent years

Assets that once behaved differently – such as shares and bonds – have at times moved together, reducing their ability to cushion portfolios during market stress. As a result, many investors are re-thinking how they build resilience into their portfolios.

This has brought renewed attention to gold — one of the most established non‑traditional diversifiers — and its potential role alongside traditional investments.

What makes gold different?

Gold behaves differently from most financial assets. It is not tied to company earnings, is not issued by any government, and historically has not relied on government growth for its value. For generations, investors have turned to gold as a way to help preserve capital during periods of economic, inflationary and geopolitical uncertainty.

That role still matters today. High government debt, ongoing geopolitical tensions and lingering inflation risks have raised questions about the long‑term stability of currencies and traditional safe-haven assets. In this environment, gold’s unique role may help provide balance when other parts of a portfolio come under pressure.

Growing government debt is driving allocation to safe havens such as gold

Central bank demand is a long-term tailwind for gold

Gold is also supported by long‑term demand from central banks, which have continued to increase their gold holdings as part of broader efforts to diversify reserves. This steady demand helps reinforce gold’s place in the global financial system.

Why investors are focusing on gold

Periods of calm and volatility now tend to alternate more quickly — often driven by headlines, policy shifts or geopolitical events. At the same time, equity markets remain concentrated in a small number of large companies, making diversification within equities more challenging.

Gold has historically behaved differently from both shares and bonds, particularly during periods of market stress. That low correlation may help smooth portfolio outcomes when diversification is most needed.

Importantly, gold remains under-allocated in many portfolios. Despite periods of strong performance, investor exposure to gold is still relatively modest, suggesting its diversification benefits are not fully reflected in portfolios.

Gold equities may add another dimension beyond price

Investors can access gold exposure in different ways, including holding physical gold, or investing in gold-related equities such as mining companies. While physical gold offers direct exposure to the metal, gold equities introduce an additional layer of return potential.

Gold mining stocks tend to move more than the gold price itself, allowing investors to participate more meaningfully in a rising gold-price environment. In other words, when gold prices move higher, well-positioned mining companies may amplify that upside.

Importantly, gold equities are not solely driven by the price of gold. Through active management, investors may also benefit from value created at the company level – such as exploration success, operational improvements, cost control, capital discipline and corporate actions.

Gold miners today look very different from past cycles

After years of restructuring, many gold miners today have stronger balance sheets, improved cost structures, and a greater focus on profitability and cash-flow generation, compared with previous cycles.

This creates meaningful differences across the sector. Some companies are better positioned than others to manage costs, allocate capital effectively and navigate volatile markets. Identifying these businesses may add an additional source of return on top of gold price exposure, particularly during periods of heightened uncertainty, when dispersion between stronger and weaker companies become more pronounced.

Higher gold prices have supported strong earnings growth, expanding margins, and record levels of free cash-flow generation – materially improving balance sheets across much of the sector. Importantly, returns have been underpinned by capital discipline, improved operating performance and a renewed focus on shareholder returns.

Gold equity margins have been increasing

Building resilience for the long term

Gold and gold equities can play a distinct role in diversified portfolios, particularly at a time when traditional diversification tools may be less reliable.

In a world marked by higher debt, persistent inflation risks and ongoing geopolitical uncertainty, gold continues to offer something increasingly valuable: resilience.