The Case for Gold in a Fragmented World
16 May 2025
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We’ve previously explored gold’s role in Hundle client portfolios, but with gold now surpassing the “Magnificent Seven” tech stocks as the most crowded trade, according to the latest BofA Global Fund Manager Survey, it’s fair to ask: is gold now overvalued?
In our view, the strategic case for including gold in a multi-asset portfolio is more robust than ever. In the current environment of geopolitical fragmentation, persistent inflationary pressures, and rising asset class correlations, gold is no longer just a defensive tool, it is a key component of long-term portfolio construction.
A SAFE HAVEN IN AN UNCERTAIN WORLD
Gold’s reputation as a safe-haven asset is statistically robust. During crises such as the 2008 Financial Crisis, the COVID-19 market panic, and the post-2022 inflation shock, gold outperformed equities and served as a ballast for portfolios.
What distinguishes gold is its independence. It carries no credit risk, is no one’s liability, and is physically tangible. Unlike government bonds, whose real yields can be eroded during inflationary periods, gold retains its purchasing power. This was evident in 2022, when gold held its value despite aggressive central bank tightening and rising real yields.
Moreover, gold’s correlation to traditional asset classes remains low. In fact, gold has shown a 0.00 and 0.09 monthly return correlation to the S&P 500 and Bloomberg US Aggregate Bond Index, respectively, since the 1970s.
A HEDGE AGAINST INFLATION AND CURRENCY DEBASEMENT
Gold is not a perfect inflation hedge in the short term, but its long-run track record is impressive. Data since 1968 shows gold returns are strongest when monthly inflation hovers between 0.4%–0.5%, with average monthly returns topping 30%. Even in higher inflation brackets, gold has shown resilience.
More structurally, gold hedges against currency debasement. It has historically maintained a negative correlation with the US dollar, averaging around -0.42 over the past 30 years. In a world where central banks have massively expanded money supply and inflation targeting is under scrutiny, this characteristic is vital for long-term wealth preservation.
CENTRAL BANKS ARE LEADING THE WAY
Perhaps the strongest endorsement of gold’s strategic value comes from central banks. Since 2021, net purchases of gold by central banks have risen 132%, with significant contributions from Asia, South America, and Africa.
Motivated by concerns around reserve diversification, currency risk, and geopolitical fragmentation (accelerated by the war in Ukraine) many reserve managers are turning to gold as a neutral, tariff-free reserve asset.
Notably, India increased its gold holdings by 38%, while China added over 330 tonnes between 2020 and 2024. These moves are not reactionary; they are structural shifts. As countries seek to insulate themselves from the political leverage of dollar-based reserve systems, gold is emerging as the neutral cornerstone of reserve strategy.
THE STRATEGIC ROLE IN PORTFOLIO CONSTRUCTION
Incorporating gold into a diversified portfolio improves both absolute and risk-adjusted returns.
Consider the traditional 60/40 stock/bond portfolio. From 2010 to 2025, shifting to a 60/20/20 mix (adding gold) improved the annualised return from 6.3% to 7.5%, and the Sharpe ratio (a measure of risk-adjusted return) from 0.25 to 0.38, while maintaining comparable volatility. The reason? Gold performs well when both equities and bonds falter together, as they did in 2022.
We’re not suggesting clients go all-in on bullion, particularly at the current price. But even a modest long-term allocation can improve portfolio resilience, reduce drawdowns, and enhance returns over the long run.
At Hundle, we are strategic allocators of gold, not because it’s currently popular, but because the numbers (and central banks) tell us it belongs in the conversation.
In a multipolar world where traditional hedges may falter and macro risks are increasingly synchronised, gold offers something rare: independence, resilience, and versatility.
Whether you view it as an inflation hedge, a geopolitical insurance policy, or a diversifier in a higher-correlation world, gold has proven consistently its worth.
Sources: World Gold Council; State Street Global Advisors; Bloomberg; BoFA Global Manager Survey; LSEG
