Analysis · 15 October 2026 · Isabel Ferreira
Our position on gold in the modern portfolio
Gold continues to be a debated asset within modern portfolios, providing perceived security and diversification benefits. The desk maintains that gold should be considered based on individual risk tolerance, market conditions, and long-term financial objectives. While it offers inflation hedging potential, its performance against other asset classes warrants scrutiny.
Gold as a historical asset
Gold has served as a store of value for centuries, often perceived as a safe haven during periods of economic uncertainty. Its intrinsic value, stemming from scarcity and demand, has long attracted investors seeking stability. In 2026, gold's role as a hedge against inflation remains relevant, though investors should weigh its potential against other hedging options as detailed in our ranking of inflation hedges.
Gold in a diversified portfolio
Incorporating gold into a diversified portfolio may provide balance and risk mitigation. Gold's lower correlation with equities can limit portfolio volatility, especially during market downturns. However, the desk advises careful consideration of allocation sizes and rebalancing strategies, as discussed in our piece on investment timing and significance, to maintain optimal risk-adjusted returns.
Performance comparison
Gold's performance compared to other asset classes fluctuates with market conditions. Historically, gold has shown resilience during economic crises but may lag during bull markets. In 2025, gold prices averaged £1,500 per ounce, while the S&P 500 grew by 9.5%. This disparity highlights the need for investors to assess gold's role relative to broader market trends.
| Asset | 2025 Performance | Volatility Rating |
|---|---|---|
| Gold | 2.8% | Medium |
| S&P 500 | 9.5% | High |
| Government Bonds | 4.1% | Low |
Inflation protection
Gold often serves as a hedge against inflation, providing some protection when currency values decline. It retains purchasing power better than fiat currencies during inflationary periods. Nonetheless, our analysis of inflation hedges suggests diversification with assets like real estate and inflation-linked bonds might offer more comprehensive protection.
Risks and limitations
Investing in gold carries risks, including price volatility and opportunity costs. Unlike productive assets, gold does not generate income, which may limit long-term capital appreciation. Additionally, geopolitical factors and central bank policies can significantly impact gold prices, making it crucial for investors to stay informed and consider their personal risk tolerance.
Gold's modern relevance
Despite challenges, gold remains an essential component in some modern portfolios. It offers psychological comfort and strategic value during uncertain times. The desk underscores the importance of aligning gold investments with individual goals, examining broader market conditions, and recognising gold's privacy benefits compared to digital assets.
The desk's view
Gold retains its appeal in today's portfolios, especially for those seeking diversification and inflation protection. However, investors should conduct thorough analyses, considering potential returns and risks in light of evolving economic landscapes. The desk recommends integrating gold as part of a balanced, informed investment strategy, tailoring allocations to reflect personal financial circumstances and long-term ambitions.
Questions readers ask
Should I invest in gold?
Investing in gold depends on individual risk tolerance and financial goals. Gold can offer diversification and inflation protection, but it lacks income generation. Assess its role alongside other assets in your portfolio.
How does gold compare to stocks?
Gold typically exhibits lower volatility than stocks and can perform well in economic downturns. Stocks may offer higher returns during bull markets, highlighting the importance of diversified investment strategies.
Is gold a good inflation hedge?
Gold can serve as an inflation hedge, maintaining purchasing power when currency values decline. However, diversification with other assets, such as real estate and inflation-linked bonds, may provide more comprehensive inflation protection.
How does gold's volatility affect portfolios?
Gold's volatility can impact portfolio stability, especially during economic uncertainty. Its low correlation with equities may help mitigate risk, though investors should consider allocation sizes and rebalancing strategies carefully.