Diversify your portfolio with gold

Gold has historically acted as a safe haven asset during times of market volatility while offering a similar historic risk/return to equities over the long run. Unlike cash which can lose value in the face of inflation, gold has a sense of everlasting value. Its physical properties as a valuable precious metal, scarcity, and role in the international monetary system has cemented its ability to help preserve wealth and purchasing power through the ages. As seen in the chart below, while the majority of global equity markets have faced a downturn so far in 2025 fueled by trade uncertainty, gold has continued to outperform.

An allocation to gold can help investors build resilience in their portfolio by generally offering downside protection during economic and financial uncertainties.

Global asset class returns, 2025 YTD vs 2024 calendar year 

Source: Past performance is not a reliable indicator of future performance. BlackRock, Bloomberg, as of 31 March 2025. The bars show the total returns in local currency terms, except for currencies and commodities, which are spot returns. Developed market equities is represented by MSCI World ex Australia Index (AUD), Australian equities by S&P/ASX 300 Index, US equities by S&P 500 Total Return Index, Japanese equities by Nikkei 225 Index, European equities by EURO STOXX 50 Index, Emerging market equities by MSCI EM Emerging Markets IMI Index, Chinese equities by CSI 300 Index, GREITs by FTSE EPRA Nareit Developed ex-Australia Rental AUD Hedged Net Tax Index, Global listed infrastructure by FTSE Developed Core Infrastructure 50/50 100% Hedged to AUD Net Tax Index, Australian nominal bonds by Bloomberg AusBond Composite 0+ Yr Index, Australian inflation-linked bonds by Bloomberg AusBond Infl Govt 0+ Yr Index, Global aggregate bonds by Bloomberg Global Aggregate Index (hedged AUD), Global high yield by Markit iBoxx Global Developed Markets Liquid High Yield Capped Index(AUD Hedged), EM debt by J.P. Morgan EMBI Global Core Index(AUD Hedged), Cash by S&P/ASX Bank Bill Index, Commodities by Bloomberg Commodity Index Total Return, Gold by XAU/USD, Iron ore by Historical TSI Iron Ore CFR China 62%, and Oil by WTI Crude Oil.

The most recent ASX Australian Investor Study shows that while 58% of Australian investors invest in domestic shares, only 16% invest directly in international shares. In other words, Australians exhibit a high degree of home bias when it comes to investing.¹

This is where unhedged gold can help shine a light in your portfolio. In the foreign exchange market, gold is bought and sold in USD. As such, an allocation to gold helps add diversification to the average Australian investor’s portfolio.²

Diversification isn’t simply about having a range of different securities and assets in your portfolio. It’s about having securities that respond differently to the same factors or market situations such that if one security or asset class performs negatively, the other securities or asset classes could potentially cushion some of those losses. A low correlation means that securities or asset classes have relatively different reactions to the same factors, whilst a higher correlation means they generally behave quite similarly in most scenarios.

As illustrated below, gold has a low correlation with Australian and global shares and bonds. This means assets like gold can serve as a good diversifier to provide additional ballast for your portfolio.

Source: World Gold Council as of 31 March 2025. Based on daily returns from 31 March 2015 – 31 March 2025. Gold represented by LBMA Gold Price in Australian dollars. Australian shares represented by S&P/ASX 200 Index. Global shares represented by MSCI World Index. Australian bonds represented by Bloomberg Australian Corporate Bond Index. Global bonds represented by Bloomberg Global Aggregate Index.

Liquidity is the ease in which an asset can be converted to cash without suffering a deep price discount. The most liquid asset we deal with on a daily basis is cash.

It sounds counter-intuitive, but gold is one of the most high-quality liquid assets in the marketplace. There has historically always been demand to buy and sell gold. According to the World Gold Council, the gold market was estimated to be around AU$8tn (US$5.1tn) in 2024.³ For reference, Australia’s domestic equity market was valued at $2.9tn (US$1.86tn) by market capitalisation as at March 2025.⁴

What this means is that during times of market stress, if you find that it has become difficult to immediately sell your property or certain currency exposures, you should find it relatively easier to sell your gold investments.

Indeed, this type of behaviour was shown by central banks from 2022-2024. As seen in the chart below, central bank demand for gold across the globe soared amidst a series of geopolitical shocks such as the Russian-Ukraine War, US-China Tensions, and Israel-Hamas War, and many emerging market central banks seeking to reduce their reliance on U.S. dollar reserves. It led to a spate of haven buying as central banks looked to diversify their reserves.

In this light, gold acts as an important liquidity buffer – an asset class to easily transact in and out of without being subject to extreme changes in price.

Central bank gold demand, 2019-2024

Source: World Gold Council as of 31 December 2024

New regime, new market approach. That’s been BlackRock’s mantra when it comes to portfolio construction. Those using the traditional approach to portfolio construction will have to tolerate more risk to achieve a similar return. Bonds aren’t offering the same cushion from stock slides as they used to. Long-term fiscal concerns and persistent inflation are making bonds a riskier asset today. All this has cast doubt on the future of the traditional 60/40 portfolio.⁵