While recent returns have attracted attention, Goddard cautions against mistaking short-term success for long-term certainty.
‘Gold is usually purchased to stabilise a multi-asset portfolio, or shield against inflation. More recently, however, gold has also become an attractive way to grow wealth. That said, the strong returns investors have seen lately are unusual.’
In other words, gold may shine brightly at times, but it is rarely designed to lead the performance tables.
A changing investment landscape
One reason gold has regained prominence lies in the changing behaviour of other asset classes. Heinrich Henckel, Chief Executive Officer at LGT Wealth Management, points to a broader structural shift.
‘Gold tends to come back into focus when uncertainty rises, and there is no shortage of that right now geopolitically, economically and even in the way currencies are behaving.’
He also highlights more specific drivers. ‘Central banks have been meaningful buyers, and there is a broader “de-dollarisation” conversation in parts of the world that is nudging some investors to hold more of their reserves outside traditional US assets. On top of that, precious metals have a particular pull with private investors, so once the price starts moving, momentum can build quickly.’
Perhaps most significantly, Henckel argues that gold is benefiting from the weakening role of bonds. ‘For years, bonds were the ballast in a traditional portfolio. More recently, bonds have behaved much more like equities at the wrong moments, which leaves investors asking: if bonds are not providing the same level of diversification that they used to, what else can?’
In this context, gold is stepping back into a role it once dominated.
‘Whether gold is a good move really comes down to the job you want it to do. Certainly, there could be a place for a modest, long-term allocation that’s there to diversify and add resilience not to dominate the portfolio.’
The limits of investing in gold
Despite its allure, gold remains an unusual asset, with a value driven namely by perception, scarcity and sentiment.
Henckel is candid about this reality. ‘For most investors, gold sits firmly in the ‘protect and balance’ bucket, typically through a modest allocation. It is not something to buy purely for returns.’
He adds: ‘Unlike a business, it does not generate cashflows, so you cannot fundamentally value it in the same way you would a company. That’s another reason many treat it as a portfolio tool, rather than a conviction investment.’