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Home»Investment»Gold outshines bonds as portfolio diversifier: WGC
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Gold outshines bonds as portfolio diversifier: WGC

By LucasMarch 19, 20263 Mins Read
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Gold has emerged the best portfolio diversification with the recent trend of bonds and equities moving in tandem. Historically, government bonds exhibit a negative correlation with equities, helping balance portfolio risks.

However, over the past few years, the equity-bond relationship has turned increasingly positive.

In contrast, gold has continued to predominantly display a negative correlation with equities across most periods, reinforcing its role as an effective diversifier during market stress, according to the recent World Gold Council report.

While the broad-based strength of economic activity suggests growth momentum is likely to persist, risks to the outlook stem largely from external uncertainties – spillover from geopolitical tensions, volatility in the global financial markets, and uncertain global economic prospects, all of which have intensified since the beginning of 2026.

The implications of the ongoing West Asian conflict are particularly significant for India, from energy supplies to trade and capital flows. Prolonged disruption could exert pressure on inflation, the rupee and sectoral performance.

Beyond its resilience during periods of uncertainty, gold has delivered long-term returns across economic cycles. WGC analysis shows that gold complements equities and broadbased portfolios by providing a unique combination of returns and diversification. These characteristics help improve portfolio resilience by enhancing risk-adjusted returns, reducing volatility and limiting drawdowns, it said.

Over a 19-year period, an average portfolio would have delivered higher risk-adjusted returns and lower drawdowns with gold allocations in the range of 7.5 per cent to 15 per cent, underscoring its value as a core portfolio component, said the report.

Movements in domestic gold prices reflect global gold market dynamics, import duty and exchange rate movements. With gold priced internationally in dollar, the value of the Indian rupee can significantly influence its domestic price. Periods of rupee depreciation tend to amplify gold price rises.

Over longer horizons, the depreciation of the rupee has therefore contributed meaningfully to gold’s return profile. This becomes increasingly relevant during periods of stress, when capital flows and exchange rates tend to be volatile. During such times, gold provides additional protection against uncertainty as well as from currency risk within portfolios.

Gold has emerged as one of the strongest performing assets in recent years, outperforming equities, bonds and currencies as investors have sought protection against geopolitical tensions, policy uncertainty and inflation risks.

Kavita Chacko, Research Head, India said in an environment of elevated geopolitical tensions, shifting market correlations, and persistent currency risks underscores the importance of building resilient portfolios.

Gold’s performance across market cycles, its diversification attributes and its ability to provide protection during periods of financial stress reinforce its strategic, long-term relevance within portfolios, she said.

For investors in particular, gold offers an additional layer of resilience by amplifying returns during periods of rupee depreciation, added Chacko.

Published on March 19, 2026



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