Gold's rally drivers remain intact despite price surges

Gold's two-year rally has left many advisors asking whether the metal is now too expensive to add to client portfolios. According to two prominent voices in the space, the answer is no — the structural forces that drove gold higher have not gone away, even as the pace of gains is expected to slow.

Aakash Doshi, head of gold strategy at State Street Investment Management in Boston, said the themes underpinning the current cycle remain intact: record US and global government debt, geopolitical fragmentation, steady central bank purchases, resilient Chinese physical demand, and historically elevated stock-bond correlations. Gold has roughly doubled in price over the past few years, and with the Federal Reserve turning more hawkish on inflation, Doshi expects gains to moderate in 2026 and 2027 compared with 2024 and 2025. State Street is still targeting $5,000 an ounce by the end of the first quarter of 2027.

Why the diversification case still holds

For Doshi, the argument extends beyond price targets. He noted that the stock-bond diversification assumptions underpinning traditional 60/40 or 70/30 portfolios have been challenged in the post-pandemic period, reversing roughly 25 years of largely reliable diversification benefits that ran from the late 1990s through 2021. That breakdown, he said, strengthens the case for liquid alternatives that offer less-correlated market exposure — with gold squarely part of that conversation. Doshi recommends a 3% to 10% allocation for most balanced portfolios, though he said 3% to 5% is more realistic for new money entering the asset class today. Advisors weighing that shift can look at how financial advisors are getting more tools for navigating the liquid alts space as demand for non-traditional diversifiers grows.

"Gold can be used as a strategic core asset either as an overlay to 60/40 or from a slight reduction in the bond sleeve," Doshi said. "Since it is a lower volatility hard asset that has long market history and ample global liquidity, for most investors it should be considered a strategic core holding. Higher volatility alternative-fiat assets like bitcoin and silver I view as more tactical trades. These underliers have a higher beta to equities and do not share the same safe-haven characteristics of the role gold has played in traditional portfolios."

A durable source of demand

Alex Shahidi, co-chief investment officer and senior managing director at Evoke Advisors in Los Angeles, largely agrees that rising prices alone haven't changed the investment case. Elevated government debt, persistent fiscal deficits, central bank buying, geopolitical uncertainty and concerns over fiat currency debasement all remain in place, he said — and gold has historically performed well when investors focus on those risks. Still, after several strong years, Shahidi said investors should be prepared for short-term corrections.

"Gold is difficult to value because it doesn't generate cash flows, which means sentiment can drive meaningful price swings in either direction," Shahidi said. "Rather than focusing on where gold trades next quarter, I'd pay closer attention to the underlying drivers: inflation expectations, central bank demand, fiscal conditions, and confidence in major paper currencies."

One trend Shahidi flags as particularly durable is the growing role of central banks as buyers, especially emerging-market institutions diversifying reserves away from the dollar. That accumulation, he said, may be a steadier source of demand than many investors appreciate — a dynamic advisors have tracked for years, as detailed in earlier money management tips drawn from how central bankers diversify their own reserves. It also echoes findings from a State Street study showing advisors already planning to raise their gold allocations well before the latest leg of the rally.

Shahidi pushed back on the idea that gold is primarily a crisis hedge. Since 1971, he said, gold has delivered long-term returns competitive with global equities while maintaining a relatively low correlation to stocks — a combination he believes makes it worth considering in a well-diversified portfolio. He pointed to the inflationary 1970s, when gold significantly outperformed stocks and bonds, and noted that inflation has remained above the Fed's long-term target for much of the period since 2021, with gold again outperforming many traditional assets over that stretch.

Two mistakes advisors should avoid

"From an advisor's perspective, I increasingly think of gold as part of a broader diversification allocation rather than a tactical trade," Shahidi said. "The appropriate allocation will vary based on an investor's goals, risk tolerance and comfort, but gold's historical tendency to behave differently than traditional stocks and bonds can support its role in portfolio construction."

He cautioned against two errors he sees advisors and investors make. The first is dismissing gold outright because it produces no income, which can overlook its diversification value. The second is treating gold as all-or-nothing.