2025 began on a hopeful note, as global markets showed resilience and growth momentum appeared stable across major economies. But that optimism has given way to heightened uncertainty and a sharp decline in sentiment. A significant shock – driven by a wave of tariffs and protectionist measures led by the US – has disrupted global trade flows, rattled financial markets and threatened global growth. As a result, growth forecasts have been downgraded across economies, and financial market conditions have deteriorated amidst heightened policy uncertainty.
In such a volatile, unpredictable and uncharted environment, gold’s relevance as a strategic portfolio asset has grown even stronger. Given the exceptional uncertainties facing the investment landscape in 2025, it may be prudent for vigilant investors to consider the potential benefits that gold can bring to portfolios.
Gold is a liquid asset with no credit risk, known for its scarcity and ability to preserve value over time. Its demand is both deep and broad, serving as an investment, jewellery, reserve asset, and a component in technology. These unique attributes make gold a valuable addition to any portfolio. By complementing traditional assets like stocks and bonds, gold offers stability and helps safeguard wealth in the face of market fluctuations and economic uncertainty.
Gold can enhance a portfolio in three key ways:
Gold has a proven track record of delivering positive returns over the long term. It tends to perform well in both good and challenging economic environments. During periods of turmoil and uncertainty investors seek the safety of gold, driving its price higher. And in times of economic expansion, rising consumer demand continues to support and strengthen its value.
Across multiple time horizons, gold has stood out as a top performer – outpacing other major asset classes and delivering superior returns over the past one to 20 years (Chart 1).
Gold has long been viewed as a reliable hedge against inflation, safeguarding investors during periods of rising prices. Historically, when domestic inflation has exceeded 6%, gold prices have risen by an average of 12.6% annually (Chart 2). This underscores gold’s ability not just to preserve capital but also to foster long-term growth, making it a valuable asset in high-inflation environments.
Although the importance of a diversified portfolio is widely recognised, finding truly effective diversifiers can be challenging. During periods of rising market uncertainty and heightened volatility, many assets tend to become increasingly correlated – moving in the same direction and failing to provide the protection investors seek when they need it most. Gold, in contrast, stands out in this regard. Its negative correlation to equities and other risk assets tends to strengthen during market sell-offs, helping cushion portfolio losses when it matters most (Chart 3). At the same time, gold often shows a positive correlation when markets are rising. This dual behaviour makes gold a consistently reliable and effective diversifier across market conditions.
During episodes of systemic risk, gold has demonstrated a strong track record of delivering positive returns and softening portfolio losses (Chart 4).
The gold market is large, global, and highly liquid. We estimate that total physical gold holdings – across jewellery, bars, coins, central banks and investors – are worth approximately US$16.1tn.1
Gold is also more liquid than many major global financial assets (Chart 5). Average daily trading volumes reached approximately US$163bn in 2023, US$233bn in 2024, and surged to US$298bn in March 2025.
The scale and depth of the gold market means it can comfortably accommodate large, buy-and-hold institutional investors. Unlike many financial markets, gold’s liquidity remains resilient even during periods of financial stress. This makes gold a valuable asset for investors needing to meet liabilities when other, less liquid assets may be difficult to sell or accurately value.
Gold plays a crucial role as a long-term strategic investment and a cornerstone of any well-diversified portfolio. Not only is it beneficial during periods of uncertainty, gold can also deliver long-term returns across various economic cycles. Our analysis confirms that gold complements equities and broad-based portfolios by offering a unique mix of returns, diversification, and liquidity. These characteristics make gold a powerful tool for enhancing a portfolio’s risk-adjusted performance, reducing volatility, and limiting large losses.
Our analysis highlights gold’s positive impact on portfolio performance. It shows that an average INR portfolio would have achieved higher risk-adjusted returns and lower drawdowns with allocations of 7.5%, 10%, 12.5% or 15% to gold (Chart 6).
As the global economy and financial markets grapple with mounting uncertainty, fractured trade dynamics, persistent price pressures and heightened market volatility, the need to safeguard wealth has become more critical than ever.
Gold is increasingly being recognised as a strategic anchor for portfolio resilience. Its enduring ability to preserve value, hedge against inflation, and provide stability during periods of systemic risk has reaffirmed its importance. In today’s volatile environment, gold is not just valuable – it is indispensable.
1Based on estimate of holdings as of end 2024 and average LBMA Gold Price PM for 2024.
