Gold: from performance driver to portfolio diversifier

But after the steep gains of recent years, investors should not expect the same pace of returns seen since 2024. This does not weaken the investment case for gold. After several years in which rising prices made gold a strong contributor to portfolio returns, we increasingly see its value in the diversification it can provide.

The environment in 2027 may make further gains harder to achieve. Interest rates are expected to remain high for much of the year. Higher interest rates make interest-bearing investments such as bonds more attractive, while gold itself generates no income. This makes a repeat of the rally in recent years less likely. We nevertheless remain positive on gold.

The longer-term reasons for holding gold remain. Geopolitical tensions are elevated, the global economy has become more fragmented and government debt continues to rise in major economies. Increasingly, these look like lasting features rather than temporary disruptions. In such an environment, gold can be valuable because it has characteristics that distinguish it from bonds and shares. Gold produces no income, but its value does not depend on corporate profitability or on the financial health of a particular company or government.

Central banks are another important source of demand. Many central banks have increased their gold holdings substantially in recent years as they seek to diversify their foreign-exchange reserves, with gold playing an increasingly important role as a neutral reserve asset. Continued central bank purchases could support the gold market even during periods when demand from other investors is weaker.

For private investors, the attraction is not that the gold price will rise whenever markets fall. Rather, gold tends to respond differently to economic and financial developments than equities and bonds. This is precisely what makes gold valuable from a portfolio perspective: its different return pattern can enhance diversification and help cushion a portfolio when markets are confronted with unexpected shocks.

For 2027, that different return pattern is increasingly important. We expect gold to rise from the current level (USD 4,050) to USD 5,000 per troy ounce by the end of 2027. Another exceptional rally is not necessary for gold to remain useful. In a world where geopolitical tensions, economic fragmentation and concerns about government debt increasingly appear structural, gold's role as a diversifier remains the strongest argument to hold it in the portfolio.

Jan Wirken
Senior Equity & Commodity Research & Advisory Expert