Gold occupies a central place in the history of the economy and finance. It has been used as a currency since ancient times, and has endured through the centuries without ever losing its appeal. Today, gold continues to fascinate investors, central banks and private individuals, not only for its symbolic value, but also for its unique properties as a financial asset. 

But what is the real benefit of holding gold in your portfolio? What are its advantages and disadvantages? In this article, we explore the returns, volatility, legal and economic qualities of gold, as well as its essential role in asset diversification.

ARTICLE SUMMARY : 

• Gold: an asset with no return ... But not without performance
• Gold: a unique asset with rare properties
• What is the financial risk of gold? 
• The real value of gold in a portfolio
• Is it worth holding gold today?
• How to hold gold 

Gold: an asset without yield... but not without performance 

Financial professionals generally distinguish between two fundamental concepts: 

The yield of an asset, which corresponds to the income it generates: dividends for a share, rent for property or coupons for a bond. 

Performance, which refers to the change in the price of the asset over a given period, independently of any income. 

Investors will be more or less attracted to an asset depending on their investment objectives, age or risk appetite. For example, higher-yielding assets are often favoured to prepare for retirement or to generate additional income, while lower-yielding assets can be attractive for building up solid capital over the long term.

Gold, on the other hand, is a non-yielding asset: it does not generate dividends, coupons or passive income. It is sometimes described as ‘sterile’. This may seem to be a drawback, particularly in times of high interest rates when bonds become more attractive. However, this lack of yield can become a strength in a low-rate environment, or when markets have doubts about traditional assets. 

Historically, gold has delivered a positive real return over the long term, albeit slightly less than equities. Over the last 50 years (1973-2023), its average annual performance has fluctuated between 6% and 8%, with significant variations according to economic cycles. So, even without a regular return, gold has performed particularly well in times of crisis or high inflation.

Gold: a unique asset with rare properties

Gold's special status is also explained by its legal nature. Unlike most financial assets, gold has no counterparty risk: it does not depend on the successful repayment of a loan, or on the solvency of a company or government. It is therefore the only completely autonomous asset. 

Like property, gold is a tangible asset. However, it offers specific advantages: it is easy to transport, can be traded worldwide and is highly liquid. However, this physical security is accompanied by practical constraints, such as the risk of theft, the need for secure storage, and special tax treatment on resale. 

These characteristics have made gold a universally recognised and respected asset. Central banks still hold large stocks of gold, because it strengthens balance sheets and inspires confidence in an international context. It is thus the oldest and most durable basis for monetary stability. 

What is the financial risk of gold?

Gold, while free of counterparty risk, is not a risk-free asset. Its price fluctuates, sometimes significantly, which can lead to capital losses in the short to medium term. 

Its historical volatility is estimated at around 15% a year, a level comparable to that of the major equity asset classes. However, gold's volatility is asymmetrical: it tends to rise sharply when financial markets fall, acting as a hedge. 

This behaviour makes gold a defensive asset, particularly useful for protecting a portfolio during periods of financial stress. Since the 1990s, numerous analyses have shown that gold offers one of the best performance/risk ratios among the major asset classes, particularly when combined with risky assets.

However, it is important to bear in mind that gold is not valued like a share or bond: its price is not based on future flows, but on more diffuse factors: 

• Global supply and demand (jewellery, industry, central banks, ETFs, etc.), which depends on structural or more specific factors.  
• Market sentiment, which can be exacerbated during periods of economic or financial tension, generating a massive influx of capital into the gold market.  
• Real interest rates (nominal rates - inflation), which generally fall in gold's favour. 

The absence of a traditional fundamental valuation method makes gold more difficult to forecast. Moreover, like any commodity, its price is also influenced by its production cost, which acts as a long-term floor. 

The real value of gold in portfolios

Gold has a rare property: it reduces overall portfolio risk while maintaining a robust performance. It is this ability that makes it so highly prized in asset or wealth management. Numerous empirical studies have shown that including 5-10% gold in a portfolio of equities and bonds can: 

• Reduce overall volatility, 
• Improve the Sharpe ratio (risk-adjusted return), 
• Limit drawdowns during bear markets. 

This virtue stems from gold's dynamic correlation with other asset classes: 

• Normally, gold has little or moderate correlation with the rest of the market. It should be noted, however, that gold can sometimes show a strong upward trend alongside that of the major stock market indices.  
• In a crisis, the correlation becomes negative: gold often appreciates when equities fall. In other words, gold becomes a ‘safe haven’, benefiting from uncertainties and tensions because it is the only asset with no risk of default or bankruptcy. 
• When the economy recovers, gold may be abandoned in favour of riskier assets, causing its price to fall.  

This flexible behaviour makes it possible to optimise portfolio allocation. A number of academic papers and manager studies recommend an optimal allocation of between 5% and 15%, depending on your objectives. It can go up to over 20% if the investor anticipates a positive trajectory for the gold price.

Is it worth holding gold today? 

In the current economic climate (2024-2025), there are many arguments in favour of gold: 

Persistent geopolitical tensions (Ukraine, Middle East, Taiwan, etc.), 

• Structurally higher inflation than in the previous decade, for both structural reasons (energy, raw materials, etc.) and cyclical reasons (decline of globalisation, etc.).  
• Growing mistrust of certain fiat currencies, linked to massive government indebtedness and the growing inability of the United States and Europe to act as the world's financial policemen.  
• The continued accumulation of gold by central banks, notably in China, Russia and India, to counter the Western bloc.  
• On the other hand, rising real interest rates (nominal rates - inflation) may, in the short term, make gold less attractive. A non-interest-bearing asset becomes less attractive when compared with higher-yielding bond investments. 

Despite this, in the long term, gold retains an essential protective function, particularly against monetary and systemic excesses. Its universal nature and lack of dependence on a central authority make it a natural safe-haven asset. 

How can I hold gold? 

There are many ways to hold gold. The most common way is to hold it physically, particularly for private and institutional investors.  

• Physical gold holdings in the form of bars or coins (Napoleon, Krugerrand, Maple Leaf) are more accessible to individuals. The advantage is direct ownership, with no counterparty risk, but there are disadvantages linked to possible storage costs. 
• Buying gold ETFs/index-linked products that track the spot price of gold. With low fees, they are often easy to buy and sell on the markets. Ideal for liquid, flexible exposure, they are nevertheless exposed to counterparty risk and may seem less useful in a long-term strategy.  
• Gold mining shares, which enable indirect investment in gold producers (Barrick, Newmont, etc.). There is potential for leverage on the upside, but also on the downside. This type of investment is also riskier and more correlated with equities than physical gold or ETFs, and has historically offered lower risk-adjusted returns.  
• Certificates, futures contracts, derivatives and even gold-indexed cryptocurrencies, used by advanced or institutional investors, can be used to play up or down. However, this entails high exposure to market risk and leverage.

Conclusion 

Gold is not an investment like shares, bonds or property. Yet it is precisely this singular nature that makes it an essential pillar of wealth management and strategy. In these times of growing uncertainty, gold once again acts as a material, psychological and economic safety net. This is due to gold's ability to : 

• Preserve wealth in times of inflation or crisis, while remaining ‘outside the system’.  
• Offer immediate global liquidity.  
• Appreciate when confidence in institutions or currencies wavers. 
• It is not dependent on any single issuer or state, and instead takes advantage of institutional weaknesses.  
• Gold is therefore a form of financial insurance, whether for an institutional investor, a sovereign wealth fund, a central bank or an individual looking to protect their wealth. Far from being an archaic or speculative asset, gold is a balanced asset. It does not seek to replace other asset classes, but to intelligently complement a well-constructed asset allocation.  

In a modern portfolio, gold should not be seen as an alternative choice, but as a strategic foundation of resilience and stability. So holding gold today is not a defensive reflex, but an act of clear-sighted foresight in a world where uncertainty is becoming structural, and where preserving capital is becoming as fundamental an issue as its growth.