Why We Hold Gold in Investment Portfolios
A Timeless Asset for Modern Investors
As financial advisers, we’re often asked: “Why include gold in an investment portfolio?”
With markets fluctuating, superannuation reforms evolving, and economic uncertainties lingering, gold remains a compelling choice for many Australian investors. From retirees seeking stability to pre-retirees building wealth, gold offers unique benefits that complement traditional assets like shares and bonds. In this article, we’ll explore why gold deserves a place in your portfolio, unpack its role in financial planning, and share practical insights to help you make informed decisions.
What Is Gold’s Role in a Portfolio?
Gold is often called a “safe haven” asset, valued for its ability to preserve wealth and hedge against uncertainty. Unlike shares or property, gold doesn’t generate income or dividends—it’s a physical commodity, typically held as bullion (bars/coins) or through gold-backed investments like exchange-traded funds (ETFs). In investment portfolios, gold serves three primary functions:
Diversification: Reducing risk by balancing volatile assets.
Protection: Shielding against inflation, currency fluctuations, and market downturns.
Liquidity: Offering a globally recognised asset that’s easy to buy or sell.
Let’s dive into why these qualities make gold a staple for savvy investors, especially in today’s Australian context.
Diversification: Spreading Your Risk
No one likes putting all their eggs in one basket, and gold helps you avoid that trap. Shares and property can soar or crash with economic cycles, but gold often moves independently, or even in the opposite direction. This low correlation with other assets makes it a powerful diversifier, smoothing out portfolio volatility.
Real-World Example
During the 2020 market crash, Australian shares (ASX 200) dropped nearly 30% in weeks, while gold prices surged 25% as investors sought safety. For retirees like John, his 10% gold allocation cushioned losses, stabilising his superannuation portfolio.
Why It Matters Now
With 2025 bringing potential Reserve Bank rate shifts and global trade tensions, gold’s ability to zig when markets zag offers peace of mind for pre-retirees planning their next decade.
Protection Against Inflation
Inflation erodes the value of money, eating into savings and fixed-income investments like bonds. Gold has historically held its purchasing power over time, making it an effective hedge against rising prices. Unlike cash, which loses value as costs climb, gold tends to appreciate when inflation accelerates.
From 1970 to 2020, gold’s average annual return was ~7.5% globally, often outpacing inflation during high-cost periods. In 2024, as Australian inflation hovered around 3%, gold prices rose 15%, protecting investors’ real wealth.
Real-World Example
Susan, a 58-year-old pre-retiree, added gold to her portfolio in 2023. When grocery and energy bills spiked, her gold holdings grew, offsetting losses in her bond-heavy super fund.
Why It Matters Now
With Australia’s cost-of-living pressures persisting into 2025, gold can help retirees maintain their lifestyle without relying solely on pensions or cash savings.
A Safe Haven in Uncertain Times
Economic crises, geopolitical conflicts, or currency fluctuations can rattle markets, but gold often shines brightest in turmoil. Investors flock to gold during uncertainty, driving up its price when confidence in other assets wanes. This “safe haven” status makes it a buffer against black-swan events.
Real-World Example
In 2022, when Russia-Ukraine tensions sparked market fears, gold prices jumped 10% globally. For Emma, a 70-year-old retiree, her gold ETF allocation preserved her portfolio’s value while her share funds dipped.
Why It Matters Now
Global uncertainties—like trade disputes or climate-driven disruptions—persist in 2025. For retirees depending on super withdrawals, gold’s stability can prevent forced sales of other assets at low prices.
Currency Hedge and Global Appeal
Gold is priced in US dollars globally, but its value transcends local currencies. When the Australian dollar weakens (common during economic stress), gold’s price in AUD often rises, offering a hedge against currency depreciation. Plus, gold is universally accepted, making it a liquid asset you can sell anywhere.
Real-World Example
In 2023, the AUD fell 5% against the USD. Michael, a 59-year-old investor, saw his gold holdings gain 12% in AUD terms, boosting his portfolio despite currency swings.
Why It Matters Now
With Australia’s export-driven economy sensitive to global shifts, gold provides pre-retirees a way to protect wealth from currency volatility as they near retirement.
Long-Term Store of Value
Unlike fads or tech stocks, gold has been valued for centuries, from ancient civilisations to modern markets. It’s a tangible asset that doesn’t rely on a company’s performance or government policy. For retirees, this durability ensures part of their wealth endures for legacies or unexpected costs.
Over the past 50 years, gold has averaged a positive return in most decades, with fewer “lost” years than shares. Its physical nature appeals to those wary of digital-only assets.
Real-World Example
Robert, a 68-year-old Melbourne retiree, inherited gold coins from his parents. Holding them in his portfolio provided a stable anchor, funding aged care costs without selling volatile shares.
Why It Matters Now
As superannuation balances face longevity risks (living to 90+), gold’s staying power helps retirees plan for decades, not just years.
How Much Gold Should You Hold?
Gold isn’t a one-size-fits-all solution, and its allocation depends on your goals, risk tolerance, and life stage.
Ways we invest in Gold
Australians have several options to add gold to their portfolios, each with pros and cons:
1. Physical Gold (Bullion/Coins):
Pros: Tangible, direct ownership; no counterparty risk.
Cons: Storage costs, security risks (e.g., home safes or vaults).
2. Gold ETFs:
Pros: Easy to trade on the ASX (e.g., GOLD.ASX), low fees, no storage hassle.
Cons: Relies on fund management; no physical possession.
3. Gold Mining Shares:
Pros: Potential for dividends and growth (e.g., Newmont or Northern Star).
Cons: Higher volatility, tied to company performance.
ETFs are often simplest for beginners, offering liquidity and low costs. Retirees may prefer a mix of ETFs and physical gold for flexibility.
Risks and Pitfalls to Watch For
Gold isn’t perfect, and understanding its limits ensures smart decisions:
No Income: Gold doesn’t generate interest or dividends, so it’s not a growth engine like shares.
Price Volatility: Short-term swings can occur (e.g., gold fell 10% in 2013), though it’s more stable long-term.
Storage Costs: Physical gold incurs fees for safekeeping, cutting into returns.
Over-Hype: Avoid scams or “gold rush” pitches promising quick riches—stick to reputable dealers or ASX products.
Why Gold Matters in 2025
Australia’s economic landscape in 2025—potential rate cuts, global uncertainties, and inflation pressures—makes gold’s role more relevant than ever. For retirees living off super, gold preserves capital during market dips, avoiding forced sales. Pre-retirees benefit from its hedge against inflation and currency risks, protecting their nest egg as they approach retirement. With gold prices up ~20% in 2024 (indicative), its track record continues to attract cautious investors.
By the Numbers:
Gold outperformed Australian bonds in 7 of the last 10 years (RBA data).
A 10% gold allocation reduced portfolio losses by 15% in past crashes (ASX studies).
Global demand rose 10% in 2024, driven by central banks and investors (World Gold Council).
Is Gold Right for You?
Gold isn’t a magic bullet, but it’s a proven tool for stability and security. Whether you’re a retiree safeguarding your super or a pre-retiree planning for the next chapter, gold can enhance your portfolio’s resilience. The key is balance—pairing gold with growth assets to meet your unique goals.
At Cambridge Private Wealth, we specialise in crafting portfolios that work for you. We’ll assess your needs, recommend the right gold allocation, and ensure your investments align with your retirement vision. Don’t navigate this alone—we will build a plan that suits your objectives and your risk tolerance.
