Gold’s role in portfolios is often debated during periods of calm and rediscovered during periods of strain. Its relevance tends to become clearer when markets are under pressure. The lustre never truly fades, but lately gold has been sparkling with renewed intensity. As prices climb and investor flows follow, the discussion is moving toward a more practical issue: does gold still warrant a place in portfolios, and how should that exposure be structured?
“It has been a very good hedge during some of the toughest markets in history,” says Jeremy Schwartz, global CIO at WisdomTree. “If you look at the worst quarters for stocks -- we studied the 20 worst and gold was up in most of them. We find it acts as a risk reducer and helps hedge the purchasing power of the dollar when you add it to a portfolio.”
Gold has had a ferocious rally over the last five years, climbing more than 200%. There is a long list of explanations, but the dominant driver may be the emergence of a more fragmented geopolitical order that has pushed investors back toward the precious metal.
Layer on concerns about currency debasement, slowing growth, persistent inflation and fiscal trajectories that remain difficult to reconcile with long-term sovereign stability, and gold’s resurgence becomes less surprising.
In periods of stress, gold has consistently reasserted itself.
What is more interesting than the price action, however, is the structural conversation unfolding beneath it. The question is no longer simply whether gold will continue to rally. It is whether portfolios have been systematically under-allocated to it.
A comparison of ETF markets offers a revealing signal. The U.S. ETF market is roughly four times larger than Europe’s. Yet European investors hold more assets in commodities and gold than their U.S. counterparts. According to Wisdomtree data, average allocation in U.S.-listed ETFs sits around 1.5–2%. In Europe, he notes, it is closer to 6%.
That gap becomes more pronounced when measured against global market weights. A passive allocation across public equities, fixed income and liquid alternatives would imply a gold allocation in the low teens. Most portfolios remain far below that level.
“I think people have been under-allocated,” Schwartz says. “If you look at the size of the global opportunity set, portfolios are so far below where a neutral allocation might actually land.”
For years, strong equity returns masked this shortfall. Advisors did not feel pressure to diversify away from U.S. stocks. Bond allocations still anchored traditional 60/40 frameworks. Gold remained an alternative sleeve, often funded from a modest “other” bucket.
Today’s macro backdrop has shifted. Debt levels across developed markets continue to rise. Fiscal deficits remain entrenched. Central banks are diversifying reserves and reassessing long-term exposure to sovereign debt.
Gold’s demand profile reflects that change. Central banks have emerged as consistent buyers. Institutional demand has broadened. The marginal buyer is increasingly strategic rather than speculative.
One of the most persistent barriers to holding gold has been practical.
“To me, the question has always been what do you sell to buy gold,” Schwartz says. “Are you selling bonds? Are you selling stocks?”
Allocating to gold traditionally required selling something else. Reducing equities meant sacrificing growth. Reducing bonds meant giving up income. That trade-off reinforced the perception that gold should be used selectively.
Using futures-based structures, portfolios can maintain core allocations to equities or fixed income while adding gold as an overlay.
“You buy a core portfolio of equities or bonds and then add gold on top,” Schwartz says. “To me, that’s the best of all worlds. You get the gold overlay without reducing one of your core holdings.”
The logic is straightforward. Gold does not produce income. It lacks the cash flows of equities and the coupons of bonds, which makes it harder to value through traditional frameworks. Its role is to hedge risk and preserve purchasing power, not to generate yield.
There are trade-offs to understand. Futures-based exposure introduces leverage and reflects prevailing short-term interest rates, which represent the cost of maintaining that exposure.
Gold’s recent strength has reinforced a practical point for advisors: its most meaningful moves tend to occur when positioning is light and expectations are low.
“The move in the last 12 months shows how surprising it can be,” Schwartz says. “People may think it comes out of nowhere.”
That dynamic has played out repeatedly across recent cycles. During the post-pandemic inflation surge, many questioned gold’s relevance when it did not initially respond as expected. Investor attention shifted toward newer alternatives, particularly digital assets, which captured much of the narrative around currency debasement and monetary risk.
Schwartz says, “Bitcoin had a lot of the momentum behind it with similar motivations. Then you saw that momentum start on gold and it piled on.”
Volatility remains part of the asset’s profile. Sharp rallies often attract leveraged positioning in derivatives markets, which can amplify corrections when sentiment shifts.
The structural argument for advisors rests on forces that extend beyond short-term performance. Debt and deficit trajectories across developed economies remain elevated. Fiscal consolidation appears unlikely in the near term. Currency diversification has become an active policy consideration for central banks rather than a theoretical discussion.
“We’re suggesting people allocate more strategically,” Schwartz says. “The long-term risks of debt and deficits are with us for as far as we can see. It’s not just a U.S. phenomenon, it’s global.”
When integrated without displacing core equity or fixed-income exposure, it becomes easier to maintain that diversification consistently rather than attempting to add it after the fact.
This article has been produced in partnership with WisdomTree
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