Gold

Gold as a Strategic Asset Class

Investors have often used gold tactically in their portfolios, with an aim to help preserve wealth with a relatively liquid asset that can potentially help navigate risk during market corrections, geopolitical stress or persistent dollar weakness. But in addition to gold’s tactical benefits, its function as a core diversifying asset during a variety of business cycles may demonstrate that gold can potentially play a more long-term strategic role.

The Potential Short-term and Strategic Benefits

Gold has the potential to enhance portfolio construction strategies on several fronts — providing broad benefits that can potentially support strategic investment efforts across multiple business cycles. Primary potential benefits include:

Gold has demonstrated a low and negative historical correlation to many financial indices over time, potentially helping to smooth out volatility and preserve wealth. For example, gold has shown a 0.00 and 0.07 monthly correlation to the S&P 500 Index and Bloomberg US Aggregate Bond Index, respectively, since the 1970s. This persistent and historically low correlation to many other financial assets is rooted in gold’s diverse sources of demand — both cyclical and countercyclical — which is illustrated during different phases of a full economic cycle.

With a reputation as a perceived safe-haven asset, gold’s performance has the potential to shine during extreme volatility and market turbulence, growing less correlated to traditional equities and providing a potential ballast for portfolios that can help limit drawdowns.

As 2020 transformed asset markets, investors were faced with constructing portfolios that can weather the low interest rate and risk landscape. Gold’s historic benefits may potentially provide advantages to the modern-day portfolio that can help investors navigate these evolving risks.