Gold functions as a strategic long-term investment asset and a mainstream component in diversified portfolios, playing a crucial role. Over time, investors have recognized gold's true value by maintaining long-term allocations and leveraging its safe-haven properties during periods of economic uncertainty.

Gold is a highly liquid asset, free from credit risk as it is no one's liability, and its scarcity has historically preserved its intrinsic value. It also benefits from diverse sources of demand: investment, reserve assets, jewelry, and technology manufacturing. These attributes enable gold to enhance portfolio performance in three key areas: - Delivering long-term returns (p.4) - Optimizing risk diversification (p.7) - Providing liquidity (p.9)

These factors make gold a complementary asset to stocks and bonds and a favored choice for diversification in core portfolios. Furthermore, integrating Environmental, Social, and Governance (ESG) objectives into investment strategies is increasingly important, and gold can support the achievement of these goals. Gold sourced through established channels should be viewed as an asset responsibly mined and delivered via supply chains meeting high ESG standards. It also plays a potential role in helping investors mitigate climate-related risks.

Gold has long been regarded as a beneficial asset during unstable periods. Historically, it has delivered positive long-term returns regardless of economic conditions. Its diverse demand sources grant it unique resilience and the potential to provide stable returns across various market environments (Figure 1). On one hand, gold serves as a means to protect and grow wealth over the long term; on the other, it functions as a consumer good through jewelry and technology demand. During economic uncertainty, counter-cyclical investment demand drives gold prices higher, while pro-cyclical consumer demand supports its performance during economic expansions.

Over the past half-century, since the collapse of the U.S. gold standard in 1971, the U.S. dollar-denominated gold price has increased by approximately 9% annually. Since the establishment of the Shanghai Gold Exchange in 2002, the domestic gold price in Chinese yuan has risen by an average of over 11% per year. During this period, gold's long-term returns have been comparable to equities and higher than bonds. Gold has also outperformed many other major asset classes over the past 1, 3, 5, 10, and 20 years (Chart 1).

This strong performance is not coincidental. Research indicates that long-term gold prices are primarily driven by economic factors, balanced by financial influences, within an analytical framework termed the Gold Long-Term Expected Return (GLTER). The GLTER model, based on the composition of above-ground gold stocks and their drivers, shows that gold's long-term returns align closely with global GDP growth, significantly outpacing inflation. This suggests that beyond its recognized role as a risk hedge, gold should be viewed as an asset that positively contributes to long-term portfolio returns.

Chart 1: Gold has performed well over 1, 3, 5, 10, and 20 years, even amid strong risk asset performance. Annualized returns of various assets over the past 1, 3, 5, 10, and 20 years* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *Returns from December 31, 2005, to December 31, 2025. Indices used include: U.S. Cash (ICE 3-Month Treasury Bill Index); U.S. Treasuries (Bloomberg U.S. Treasury Index); U.S. Equities, Global ex-U.S. Equities, and Emerging Market Equities (MSCI USA Index, MSCI World ex USA Total Return Index, MSCI Emerging Markets Total Return Index); Commodities (Bloomberg Commodity Total Return Index); Gold (LBMA Gold Price PM).

Gold has also exhibited lower volatility than some equity indices, commodities, or alternative assets, due to its scale, liquidity, and diverse demand sources (Chart 2).

Chart 2: Gold's volatility is lower than many equity indices, alternative assets, and commodities since 2005. Annualized daily volatility of major assets since 2005* *Annualized volatility calculated from daily U.S. dollar-denominated returns from December 31, 2005, to December 31, 2025. Indices include: Bloomberg Global Aggregate Bond Index; Bloomberg Commodity Index; MSCI Daily World Total Return Index; LBMA Gold Price PM; MSCI Daily Emerging Markets Total Return Index; MSCI USA Index; S&P Listed Private Equity Index; FTSE Nareit All Equity REITs Index (USD); Bloomberg WTI Crude Oil Index.

Figure 1: Sources of Gold Demand Average annual net demand = 3,181 tonnes* (approx. $351 billion) Source: ICE Benchmark Administration, Metals Focus, World Gold Council *Based on 10-year average annual net gold demand figures up to Q4 2025. Demand includes: jewelry and technology demand net of recycling, bar and coin demand, gold ETF demand, and central bank demand, historically calculated as net demand. OTC demand is excluded due to data limitations. Totals may not sum to 100% due to rounding. U.S. dollar value calculated using the 2025 annual average LBMA Gold Price PM of $3,431.5/oz. **Net jewelry and technology demand assumes 90% of annual recycled gold comes from jewelry and 10% from technology.

Gold has historically served as an effective hedge against inflation, with data confirming it has outperformed both U.S. and global Consumer Price Index (CPI) measures since 1971. Research also indicates that gold typically performs well during deflationary periods, which are characterized by low interest rates, reduced consumption and investment, and increased financial stress—factors that boost gold investment demand.

As a store of value, gold has historically been linked to major currencies. Since the delinking of the U.S. dollar from gold in 1971 and the subsequent collapse of the Bretton Woods system, gold has significantly outperformed all major currencies, with few exceptions. While its performance immediately after the gold standard ended is notable, gold has continued to outperform most major currencies in recent times (Chart 4). A key factor is the slow growth of above-ground gold stocks, which have increased at an average annual rate of about 1.7% over the past 25 years, compared to a significantly higher average annual growth rate of approximately 7.3% in money supply over the same period.

Fiat currencies can be printed in unlimited quantities to support monetary policy, as seen during the Global Financial Crisis (GFC) and the post-pandemic quantitative easing measures. During these crises, many investors turned to gold to hedge against currency devaluation and maintain long-term purchasing power. Rapidly expanding U.S. money supply and low-interest-rate environments have indeed created favorable conditions for gold's performance (Chart 5).

Chart 4: Gold price trends alongside U.S. money supply expansion. U.S. M2 money supply growth, U.S. CPI, and gold price* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of December 31, 2025. U.S. CPI and U.S. M2 money supply indexed to 100 as of January 1972. Gold price based on U.S. dollar-denominated LBMA Gold Price PM.

Chart 3: Purchasing power of major currencies and commodities has declined significantly relative to gold. Value of currencies and commodities relative to gold (January 2000 = 100)* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of December 31, 2025. Relative value of 'Gold' (LBMA Gold Price PM), 'Commodities' (Bloomberg Commodity Index), and major currencies since January 2000. Commodity and currency values measured in ounces of gold as of January 2000, indexed to 100.

Gold is an effective risk diversification tool. It is often difficult to find assets that provide genuine diversification, especially as correlations between many assets increase during periods of market uncertainty and rising volatility, partly driven by risk-on or risk-off investment decisions. This means many so-called diversifiers fail to protect portfolios when needed most. Furthermore, rising inflation in recent years has increased the positive correlation between bonds and equities, weakening their traditional balancing role.

Gold differs in this regard. Its negative correlation with equities and other risk assets increases during sell-offs in those assets. The Global Financial Crisis is a prime example: while stocks and other risk assets, along with hedge funds, real estate, and many commodities traditionally seen as diversifiers, experienced significant declines, the gold price increased steadily, with the U.S. dollar price rising 21% between December 2007 and February 2009. Gold also demonstrated positive performance during the significant equity market corrections in 2020 and 2025.

This robust performance is not surprising. With few exceptions, gold has been a particularly effective diversifier during periods of systemic risk, delivering positive returns and reducing overall portfolio losses (Chart 7).

Chart 5: Gold prices tend to rise during systemic risk events. Performance of equities, bonds, and gold during various crises* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of December 31, 2025. Returns calculated based on U.S. dollar returns of 'Global Equities' (FTSE All-World Index), 'U.S. Treasuries' (Bloomberg Barclays U.S. Treasury Index), and 'Gold' (LBMA Gold Price PM). Event dates: Dot-com bubble: March 2000–March 2001; 9/11: September 11, 2001; 2002 recession: March 2002–July 2002; Global Financial Crisis (GFC, labeled 'Great Recession'): October 2007–February 2009; Sovereign Debt Crisis I: January 2010–June 2010; Sovereign Debt Crisis II: February 2011–October 2011; Brexit: June 23, 2016–June 27, 2016; 2018 equity correction: October 2018–December 2018; 2020 equity correction: January 31, 2020–March 31, 2020; 2022 equity correction: January 2022–December 2022; Tariff Dispute: February 18, 2025–April 8, 2025.

However, gold's correlation benefits are not limited to turbulent times; it can also exhibit positive correlation with equities and other risk assets in positive market environments, making it a comprehensive and effective hedging tool (Chart 8). This benefit stems from gold's dual nature as both an investment and a consumer good. Consequently, its long-term performance is supported by income growth. Analysis confirms that when equity markets rally strongly, their correlation with gold increases, driven by rising consumer demand due to the wealth effect and investor demand for inflation hedging.

Chart 6: Gold performance is also solid during market recoveries following systemic sell-offs. Performance of gold and U.S. Treasuries from market troughs to recovery points (pre-sell-off equity levels)* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of December 31, 2025. Returns calculated based on U.S. dollar returns of 'U.S. Treasuries' (Bloomberg Barclays U.S. Treasury Index) and 'Gold' (LBMA Gold Price PM). Dates based on the end dates of corresponding events in Chart 7. Post dot-com: March 2001–May 2007; Post-9/11: September 2001–November 2001; Post-2002 recession: July 2002–November 2004; Post-GFC (labeled 'Post-Great Recession'): February 2009–January 2013; Post-Sovereign Debt Crisis I: June 2010–October 2010; Post-Sovereign Debt Crisis II: October 2011–February 2012; Post-Brexit: June 2016–July 2016; Post-2018 correction: December 2018–June 2019; Post-2020 correction: March 2020–July 2020. **The bar for the post-dot-com recovery is truncated due to the extreme difference in duration compared to other events and for readability.

The gold market is large, global, and highly liquid. Estimates indicate that physical gold held by investors and central banks is valued at approximately $12.6 trillion, with an additional $1.4 trillion in open interest through exchange-traded or over-the-counter (OTC) derivatives. Gold market liquidity exceeds that of several major assets, including EUR/GBP and the Dow Jones Industrial Average, while OTC trading volumes are comparable to U.S. Treasury Bills. In 2025, total average daily gold trading volume was approximately $361 billion, comprising $180 billion in OTC spot contracts and $174 billion in futures traded on global exchanges. Physically-backed gold ETFs provided an additional source of liquidity, with global funds averaging $7 billion in daily trading volume.

Chart 7: Gold trading volume surpasses many other major financial assets. Average daily trading volume (USD) over the past year* Source: Bloomberg, Bank for International Settlements, FINRA TRACE, BaFin, Nasdaq, SIFMA, UK Debt Management Office, World Gold Council *Estimated average daily volume from January 1, 2025, to December 31, 2025, except for FX corresponding to April 2025 volume due to data availability, and UK Gilts and German Bunds corresponding to 2024 data. **Gold liquidity data includes OTC estimates, published futures exchange statistics, and gold-backed exchange-traded products.

Chart 10: Gold exhibits strong liquidity across major investment platforms. Average daily trading volume by product type in 2025* Source: Bloomberg, COMEX, Nasdaq, ICE Benchmark Administration, World Gold Council *Average daily volume from January 1, 2025, to December 31, 2025. Gold liquidity data includes OTC estimates, published futures exchange statistics, and gold-backed exchange-traded products.

Detailed analysis of gold trading volume composition and calculation methodology is available on Goldhub.com. The size and depth of the gold market allow it to easily accommodate large institutional investors buying and holding gold. In contrast to many financial markets, gold liquidity does not dry up even under significant financial stress. Importantly, gold can help investors meet liabilities when less liquid assets in a portfolio are difficult to sell or experience pricing dislocations.

While gold mining is an extractive industry by definition, responsible miners adhere to strict frameworks to mitigate environmental impact and risk. The social and economic contributions of gold mining play a key role in host communities and countries, supporting ESG goals through wages, taxes, local economic development, infrastructure, healthcare, and education. Recent assessments indicate that most of this expenditure remains within the local economies of mining countries and communities. The gold mining industry is also committed to advancing the UN Sustainable Development Goals.

Gold plays a potential role in helping investors reduce climate risk. Importantly, gold itself generates no downstream emissions, and holding gold can lower a portfolio's overall carbon intensity. Furthermore, the positive prospects for decarbonization across the gold value chain positively influence carbon concentration forecasts, "implied temperature" metrics, and portfolio climate alignment.

Analysis suggests that under various long-term climate scenarios, gold has the potential to outperform many mainstream asset classes, particularly when climate impacts cause or exacerbate market volatility, or during a disruptive transition to a net-zero carbon economy. Additionally, gold's value is largely unaffected negatively by carbon price increases, offering investors some protection from policies accelerating the transition to a decarbonized economy.

Considering the risk/return trade-off inherent in any investment, it is crucial to identify potential opportunities while understanding key risks.

A well-known drawback of gold is that it generates no periodic income, unlike bonds, real estate, or certain equities. However, this is because gold carries no credit risk, requires no repayment promise, and involves no counterparty risk. Profit from gold, therefore, relies on price appreciation, which it has historically delivered. Gold has provided long-term positive returns through various economic conditions and has outperformed many major asset classes over different investment horizons (3, 5, 10, and 20 years). This performance is not accidental; it stems from fundamental supply and demand dynamics combining gold's natural scarcity with diverse demand sources including jewelry, technology, investment, and central banks.

Regarding price volatility, gold is an excellent portfolio diversifier not due to low volatility, but because its performance differs from stocks and bonds. While gold's volatility is lower than some equity indices, commodities, or alternative assets, it has experienced significant annual price movements (e.g., +30% in 2010, -30% in 2013). Although gold has underperformed equities over some medium-term periods, its correlation with equities is asymmetric; meaning, its positive performance during equity market declines is more pronounced than its underperformance during market rallies (Chart 15).

Chart 8: Gold has experienced periods of medium-term underperformance. Five-year rolling annualized returns* Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of December 31, 2025. Annualized returns calculated based on monthly returns of the FTSE Developed Total Return Index and the LBMA Gold Price PM since January 1994.

In conclusion, global perception of gold has shifted significantly over the past two decades, reflecting both rising wealth in the East and a deeper understanding of gold's role in institutional portfolios. With its scarcity, high liquidity, and low correlation to other assets, gold serves as a genuinely effective long-term risk diversifier. As both an investment and consumer good, its annualized returns since 1971 have rivaled equities and exceeded bonds and commodities.

As a traditional safe-haven asset, gold's value is often highlighted during high-risk periods. However, its dual appeal also means it can deliver positive returns during favorable economic conditions. Amid persistent political and economic uncertainty and concerns over the outlook for equity and bond markets, this dynamic characteristic of gold is expected to continue.