Long-term returns, liquidity and effective diversification all benefit overall portfolio performance. Combined, they suggest that the addition of gold can materially enhance a portfolio’s risk-adjusted returns.
Our analysis of investment performance over the past 3, 5, 10 and 20 years emphasises gold’s positive impact on an institutional portfolio (Chart 11).
Chart 11: Composition of a representative portfolio
*As of 31 December 2025. MSCI World, EM and World Small Cap Indices, Bloomberg US Treasury, US Corporate and US High Yield Indices, FTSE REITs Index, HFRI Hedge Fund Index, Bloomberg Commodity Index.
It shows that a hypothetical average USD portfolio would have achieved higher risk-adjusted returns and lower drawdowns if 2.5%, 5%, 7.5% or 10% were allocated to gold (Chart 12 and Table 1).
Chart 12: Adding gold over the past 20 years would have increased risk-adjusted returns of a hypothetical USD portfolio
Risk-adjusted returns of a hypothetical portfolio with and without gold*
Case for Gold 2026: Chart 12 (v2)
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Based on monthly US dollar performance between 31 December 2005 and 31 December 2025. The allocation to gold comes from proportionally reducing all assets. Risk-adjusted returns are calculated as the annualised return/annualised volatility.
Table 1: Gold has increased risk-adjusted returns while reducing portfolio volatility and maximum drawdowns
Comparison of a hypothetical USD portfolio and an equivalent portfolio with 5% gold over the past 3, 5, 10 and 20 years based on US-dollar returns*
3-year
5-year
10-year
20-year
No gold
5% gold
No gold
5% gold
No gold
5% gold
No gold
5% gold
Annualised returns
13.1%
14.1%
6.6%
7.2%
8.0%
8.4%
6.7%
7.0%
Annualised volatility
8.2%
7.9%
9.8%
9.5%
9.5%
9.1%
9.9%
9.6%
Risk-adjusted return
159.5%
178.0%
67.2%
75.7%
84.6%
92.1%
68.1%
72.3%
Maximum drawdown
-12.8%
-11.9%
-19.7%
-19.1%
-19.7%
-19.1%
-34.9%
-32.7%
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *Based on monthly US dollar performance between 31 December 2005 and 31 December 2025. The allocation to gold comes from proportionally reducing all assets. Risk-adjusted returns are calculated as the annualised return/annualised volatility.
In addition to a traditional back testing historical analysis, a mean variance optimisation analysis suggests that adding gold to the investment universe can result in a material enhancement to portfolio efficiency by shifting the efficient frontier upwards. For example, a portfolio with gold could deliver a higher return for the same level of risk, or the same return for a lower level of risk (Chart 13).
Chart 13: Gold could significantly improve portfolio efficiency across various levels of risk
*Based on monthly USD total returns from 31 December 2005 to 31 December 2025. Assets include: MSCI World, MSCI EM and MSCI World Small Cap Indices, Bloomberg US Treasury, Bloomberg US Corporate and Bloomberg US High Yield Indices, FTSE REITs Index, HFRI Hedge Fund Index, Bloomberg Commodity Index, LBMA Gold Price PM. ‘Equivalent return portfolio’ represents a portfolio with gold that could deliver the same return with a lower level of risk. ‘Equivalent volatility portfolio’ represents a portfolio with gold that could deliver higher returns for the same level of risk. Analysis based on a resampled optimisation methodology by Portfolio Visualizer to mitigate the impact of input estimate errors.
The ‘optimal’ amount of gold varies according to individual asset allocation decisions. Broadly speaking, the analysis suggests that the higher the risk in the portfolio – in terms of volatility – the larger the required allocation to gold within the range in consideration to offset that risk (Chart 14).
Chart 14: The optimal gold allocation varies depending on the level of risk in the portfolio
The gold allocation that could deliver the maximum risk-adjusted return for each hypothetical portfolio mix
*Based on monthly USD total returns from 31 December 2005 to 31 December 2025. Starting allocations: 1. Defensive portfolio: 35% stocks (28% MSCI Global, 3% MSCI EM and 3% MSCI Small cap); 60% bonds (30% Bloomberg US Treasuries, 22.5% Bbg US corporates, 7.5% Bbg US High Yield); 5% Alternatives (1.6% FTSE REITs Index, 1.6% HFRI Hedge Fund Index, 1.6% Bloomberg Commodity Index. 2. Moderate portfolio: as per Chart 1. 3. Aggressive portfolio: : 65% stocks (52% MSCI Global, 6.5% MSCI EM and 6.5% MSCI small cap); 20% bonds (10% Bloomberg US Treasuries, 7.5% Bbg US corporates, 2.5% Bbg US High Yield); 15% Alternatives (5% FTSE REITs Index, 5% HFRI Hedge Fund Index, 5% Bloomberg Commodity Index).
