Gold: A Speculative Asset with Strategic Value in Volatile Times

Gold has long captivated investors—not only for its shine but also for its role as a unique, speculative asset. In today’s climate of rising geopolitical tensions and economic uncertainty, gold continues to prove its relevance. While it lacks income generation like bonds or equities, gold has delivered significant upside and remains a valuable diversifier in turbulent markets.

Gold’s Growth Story Since 2020

• Near doubling since mid-2020: Gold surged from approximately $1,730 per ounce in mid-2020 to $3,343 by June 2025—a gain of 93% over five years.
• Strong year-on-year performance: By July 2025, gold reached around $3,340, up 39% compared to July 2024.
• Volatility-driven gains in 2025: Year-to-date, gold advanced roughly 28%, driven by geopolitical tensions and heightened market uncertainty.
  
  

Why Gold Still Matters—Despite Its Speculative Nature

1. Inflation Hedge (With Caveats)

Gold is often viewed as a hedge against inflation. While the data shows mixed results over long periods, gold has historically acted as a psychological anchor when inflation fears rise and mainstream assets weaken.

2. A Low-Correlation Diversifier

Gold’s movements tend to be uncorrelated with stocks and bonds, making it a powerful tool for reducing portfolio risk and smoothing volatility.

3. A Safe-Haven in Times of Crisis

From wars to recessions, gold often rallies when uncertainty spikes. In fact, 81% of central banks expect to increase their gold holdings in 2025, underscoring its enduring appeal as a reserve asset.

The Limitations of Gold

• No yield: Unlike equities or bonds, gold provides no dividends or interest. Its appeal lies solely in price appreciation.
• Lower long-term returns: Between 1984 and 2024, gold returned just 4.3% annually (pre-inflation), compared to 11.6% for the S&P 500.
• Volatility risks: Gold’s inflation-hedge role is inconsistent. For example, despite elevated inflation in 2022, gold ended the year nearly flat.
• Tax disadvantages: In the U.S., physical gold and gold-backed ETFs are taxed as collectibles—at rates up to 28%, higher than the 15–20% long-term capital gains rate on stocks and bonds.
  
  

Where Gold Fits in a Portfolio

Gold works best as a strategic supplement rather than a core holding. Its speculative rallies can provide valuable upside, but the asset is most effective when used to:

• Diversify portfolios,
• Hedge against volatility, and
• Provide stability during crises.

For most investors, a 5%–15% allocation to gold may strike the right balance—enough to capture benefits without overexposing the portfolio to its speculative nature.