Gold as a strategic asset for Indonesia
Indonesia's investment landscape is navigating a confluence of pressures in 2026. Headline inflation is rising, driven by global energy price shock stemming from the Middle East conflict; Bank Indonesia has abandoned its rate-cut guidance, and domestic equities have suffered a shock following MSCI's threat to downgrade Indonesia from Emerging Market to Frontier Market status.
Against this backdrop, gold remains a compelling asset for both institutional and individual investors. Gold has historically served as one of Indonesia's most reliable crisis hedge. During the 1997–98 Asian Financial Crisis, gold preserved purchasing power in rupiah terms as the currency collapsed by 80%. This pattern has been repeated across multiple episodes of rupiah weakness and market stress.
Access to gold in Indonesia at the institutional level is improving. The Otoritas Jasa Keuangan (OJK) has established a regulatory framework to support this, paving the way for the launch of Indonesia's first gold ETF in mid-2026.
The risk environment: why traditional assets are under pressure
Indonesia’s macro-outlook
Indonesia's economic outlook has become complicated despite its continued growth. A series of pressures -inflation, limited fiscal room, and monetary policy constraint - are converging in 2026, against a backdrop of ongoing war in the Middle East that has choked global energy flows.
Inflation is projected to rise to 3.4% this year from 2% in 2025, driven by elevated global energy supply disruptions. The current administration's infrastructure push, fuel subsidies and Makan Bergizi Gratis (free meals) programme are widening the fiscal deficit1 and, limiting the government's response to further shocks. As a result, the local cost of living is likely to rise, damaging domestic demand.
In late January, equity markets were spooked by a shock announcement from MSCI freezing all positive adjustments to Indonesian stocks in its indices on the back of ownership transparency data issues.2 Indonesia could face a downgrade to Frontier Market status if transparency reforms are not delivered by June 2026. Meanwhile, Bank Indonesia’s rate-cutting cycle which started in late 2023, seems to have derailed because of the war in the Middle East, pausing monetary support for financial markets (Chart 1).3
Chart 1: Inflation expectations constraining Bank Indonesia’s room to cut
Quarterly headline CPI and Bank Indonesia policy rate over the past five years*
Chart 1: Inflation expectations constraining Bank Indonesia’s room to cut
Chart 1: Inflation expectations constraining Bank Indonesia’s room to cut
Quarterly headline CPI and Bank Indonesia policy rate over the past five years*
*Quarterly data between Q1 2020 and Q1 2026.
Source: Bloomberg, World Gold Council
Sources:
Bloomberg,
World Gold Council; Disclaimer
*Quarterly data between Q1 2020 and Q1 2026.
Gold as a notable performer
Against the backdrop of domestic pressures, gold has been a standout performer (Chart 2). In 2025, gold in rupiah terms outperformed most global and domestic equities and bonds. In the wake of Q1 local stock market panic, gold held firm, ending the quarter up 14% in rupiah while local equities tanked 13%.
Chart 2: Gold delivered better returns than other asset classes in 2025 and Q1 2026
Performance of asset classes in 2025 and Q1 2026 in rupiah terms*
Chart 2: Gold delivered better returns than other asset classes in 2025 and Q1 2026
Chart 2: Gold delivered better returns than other asset classes in 2025 and Q1 2026
Performance of asset classes in 2025 and Q1 2026 in rupiah terms*
*Weekly data between January 2025 to March 2026. Indices used MSCI World Index, Bloomberg Global-Aggregate Total Return Index. Jakarta Stock Exchange Composite Index, MSCI AC Asia ex-Japan Index, IBPA Indonesia Composite Bond Index, Bloomberg US Treasury Total Return Index, LBMA Gold Price PM, Bloomberg Commodity Index. All in IDR.
Source: Bloomberg, World Gold Council
Sources:
Bloomberg,
World Gold Council; Disclaimer
*Weekly data between January 2025 to March 2026. Indices used MSCI World Index, Bloomberg Global-Aggregate Total Return Index. Jakarta Stock Exchange Composite Index, MSCI AC Asia ex-Japan Index, IBPA Indonesia Composite Bond Index, Bloomberg US Treasury Total Return Index, LBMA Gold Price PM, Bloomberg Commodity Index. All in IDR.
The strategic asset class for Indonesia
Indonesia’s golden hour arrives
In recognition of gold’s strategic value, an interesting development in the Indonesian market has been the building of a regulatory framework by the OJK that facilitates allocation to gold at the institutional level.
The OJK, under regulation POJK 5/20234 initially permitted gold as an investment asset for insurers and reinsurers, with a 10% cap on total investments outside of PAYDI (unit-linked insurance) funds. OJK expanded this with a product framework (POJK 2/20265) that included gold-backed ETFs, thus. paving way for local institutions to allocate to gold. And we believe gold can help improve local portfolios from the following perspectives:
Gold as a crisis hedge
Gold’s role as a crisis hedge has been demonstrated throughout every major episode of rupiah weakness and financial stress (Chart 3). Gold has been an effective hedge against currency depreciation. For example, during the 1997 Asian Financial Crisis , the rupiah declined 80% from July 1997 to January 1998. For Indonesian investors scathed by the crisis, gold was the key asset class when all else failed.
Chart 3: Gold held up during 1997-1998 Asian Financial Crisis while currencies took a beating
Performance of Asian currencies and gold in USD indexed to July 1997*
Chart 3: Gold held up during 1997-1998 Asian Financial Crisis while currencies took a beating
Chart 3: Gold held up during 1997-1998 Asian Financial Crisis while currencies took a beating
Performance of Asian currencies and gold in USD indexed to July 1997*
*Weekly data from July 1996 to December 1999. Currencies used USDTHB, USDMYR, USDPHP, USDKRW, USDIDR, XAU.
Source: Bloomberg, World Gold Council.
Sources:
Bloomberg,
World Gold Council; Disclaimer
*Weekly data from July 1996 to December 1999. Currencies used USDTHB, USDMYR, USDPHP, USDKRW, USDIDR, XAU.
During systemic crisis in equities, gold has been the time-tested performer. During the Global Financial Crisis (2008), COVID-19 (2020), Fed rate shock (2022) and the ongoing challenges in 2026, gold in rupiah terms has outperformed local equities every time. Notably, gold has also been a critical source of liquidity during some of these periods of stress, helping investors cushion losses. Although liquidity needs led to initial losses, gold recovered swiftly.
Chart 4: Gold provides downside protection
Performance of stocks, bonds and gold during various crises*
Chart 4: Gold provides downside protection
Chart 4: Gold provides downside protection
Performance of stocks, bonds and gold during various crises*
Source: Bloomberg, World Gold Council
*As of 24 April 2026. Based on weekly data. Return computations in IDR for ‘Local equities’: Jakarta Composite Index, ‘Local bonds’: IBPA/PHEI Government Total Return Index which dates back to November 2014, ‘Gold in rupiah’: XAUIDR. Dates used: COVID-19 : 2/2020 – 8/2020; 2026 Shock: 1/2026 – 4/2026.
Sources:
Bloomberg,
World Gold Council; Disclaimer
*As of 24 April 2026. Based on weekly data. Return computations in IDR for ‘Local equities’: Jakarta Composite Index, ‘Local bonds’: IBPA/PHEI Government Total Return Index which dates back to November 2014, ‘Gold in rupiah’: XAUIDR. Dates used: COVID-19 : 2/2020 – 8/2020; 2026 Shock: 1/2026 – 4/2026.
A long term and stable source of return
Beyond crisis protection, gold has provided returns during various economic cycles (Chart 5). Its diverse sources of demand give gold a particular resilience and the potential to deliver solid returns in many market conditions.
Chart 5: Gold has generated notable returns over the past 20 years
Asset compound annual growth rate (CAGR)*
Chart 5: Gold has generated notable returns over the past 20 years
Chart 5: Gold has generated notable returns over the past 20 years
Asset compound annual growth rate (CAGR)*
Source: Bloomberg, World Gold Council
*Data between April 2006 and April 2026. Based on the MSCI World Index, Bloomberg Global Aggregate Total Return Index, Jakarta Stock Exchange Composite Index (JCI), IBPA/PHEI Indonesia Government Bond Index, Bloomberg Commodity Index, and the LBMA Gold Price PM. All calculations in IDR.
Sources:
Bloomberg,
World Gold Council; Disclaimer
*Data between April 2006 and April 2026. Based on the MSCI World Index, Bloomberg Global Aggregate Total Return Index, Jakarta Stock Exchange Composite Index (JCI), IBPA/PHEI Indonesia Government Bond Index, Bloomberg Commodity Index, and the LBMA Gold Price PM. All calculations in IDR.
Strengthening Indonesian portfolios
While asset allocation varies across Indonesian institutional investors, one common theme is minimum domestic allocations.
For instance, pension funds have a mandatory minimum 30% allocation to domestic government bonds. Insurers and mutual funds are bound through permitted asset frameworks and a domestic liability matching requirement.
We reflect domestic reality in our analysis by adopting a baseline 60% local equities and 40% local bonds, modelling the impact of a gold allocation ranging from 2.5% to 10% to show improved risk-return metrics at each level of gold exposure6.
Table 1: Gold increases risk-adjusted returns while reducing portfolio volatility
Comparison of risk-return on IDR equity-bond portfolio with incremental addition to gold*
| Portfolio |
Return (%) |
Volatility (%) |
Sharpe |
| Baseline |
4.9 |
10.7 |
0.18 |
| 2.5% gold |
5.2 |
10.3 |
0.22 |
| 5.0% gold |
5.5 |
9.9 |
0.25 |
| 7.5% gold |
5.8 |
9.6 |
0.29 |
| 10% gold |
6.0 |
9.3 |
0.33 |
Source: Bloomberg, World Gold Council
*Weekly data from December 2015 to April 2026. Return computations in IDR. Indices used Jakarta Composite Index, IBPA/PHEI Government Total Return Index and XAUIDR.
Chart 6: Adding gold over the past 20 years would have increased risk-adjusted returns of a hypothetical IDR portfolio
Risk-adjusted returns of a hypothetical portfolio at incremental allocation of gold*
Chart 6: Adding gold over the past 20 years would have increased risk-adjusted returns of a hypothetical IDR portfolio
Chart 6: Adding gold over the past 20 years would have increased risk-adjusted returns of a hypothetical IDR portfolio
Risk-adjusted returns of a hypothetical portfolio at incremental allocation of gold*
Source: Bloomberg, World Gold Council
*Weekly data from April 2000 to April 2026. Based on weekly data. Return computations in IDR. Indices used Jakarta Composite Index, IBPA/PHEI Government Total Return Index and XAUIDR.
Sources:
Bloomberg,
World Gold Council; Disclaimer
*Weekly data from April 2000 to April 2026. Based on weekly data. Return computations in IDR. Indices used Jakarta Composite Index, IBPA/PHEI Government Total Return Index and XAUIDR.
Conclusion
The case for gold in Indonesia in 2026 remains compelling and is built upon four pillars:
- Elevated risk environment stemming from rising inflation, widening fiscal deficit and domestic equity woes mean that traditional assets are under pressure to deliver
- Gold has a proven track record as Indonesia’s crisis hedge. Across every major episode of rupiah weakness, gold in rupiah terms has preserved and protected purchasing power
- Gold has been a long-term and stable source of return for Indonesian investors, generating, on average, a 15% return in IDR over the past 20 years
- A modest 2.5% gold allocation, as presented in our analysis improves baseline Indonesian portfolios by reducing concentration risk.
OJK’s regulatory framework is in motion, with the launch of Indonesia’s first gold-backed ETF expected in mid-2026. The new OJK compliant structure will allow gold allocation at an institutional level, offering investors a new opportunity. Gold remains a steadfast asset class ripe with promise for Indonesia.
