In just a few short months, a colossal reversal in U.S. trade policy has upended global commerce. Simultaneously, dramatic changes to American foreign and defense policies threaten a multilateral approach that has endured for more than eight decades. These are not isolated events; they are part of a seismic geopolitical, economic and technological shift that is eroding the stability of the post-Cold War world order.
Other elements include escalating U.S.-China competition, with Taiwan an ever-present potential flashpoint; the possibility of expanded military conflict in Europe due to Russia’s imperial ambitions; the mounting scale and sophistication of cyberattacks to critical infrastructure and information systems; the renewed threat of major terrorist attacks; and an unprecedented run up in government debt globally, with no plans in sight to deal with the unsustainable sea of red ink.
No wonder the World Uncertainty Index has skyrocketed to levels not seen since the Covid pandemic.
Advisors should evaluate their strategic asset mixes to assess their resiliency in this transmogrifying landscape. One prominent option is to add gold bullion as an asset class to portfolio models. There are six reasons for this action.
1. Gold is a unique store of value
It represents an unparalleled combination of properties: scarcity, durability, divisibility, malleability and recognizability. Unlike fiat money, there is no government printing press that can explode supply.
It has matchless historic roots, having functioned as a medium of exchange since around 4,000 B.C. In numerous countries including India and China, gold has deep cultural significance as a symbol of prosperity and good fortune.
2. Gold is an exceptional diversifier in a financial asset portfolio
From January 1988 to March 2025, gold returns (based on the LBMA gold price in Canadian dollars) were overall negatively correlated with Canadian T-bills as well as Canadian, U.S., international and emerging market equities. Its most negative correlation was with U.S. stocks.
Gold’s correlation to Canadian bonds and U.S. Treasuries was positive but modest. As measured by correlation, gold in fact outshone Canadian T-bills in its diversification effect during this period.
3. Gold is a robust long-term inflation hedge
That’s particularly true during extended bouts of high inflation. As elevated inflation became entrenched in the 1970s, gold returns soared. From January 1973 to December 1979, inflation shot up at 9.3% a year while gold delivered a 37.9% annual return. Over the much longer period, January 1973 to December 2024, while Canadian inflation averaged 3.9% a year, gold returned 8.1% annually.
Stocks are also an excellent long-term inflation hedge, but gold’s low correlation to stocks makes it an outstanding complement.
Gold is less effective as a short-term inflation hedge.
4. Gold bullion outperforms gold exploration and production stocks
Gold stocks, as measured by the S&P/TSX Global Gold Index have a higher correlation to equities than gold bullion. Also, due to their business and financial risks, gold stocks are much more volatile and subject to deeper drawdowns.
From November 2000 to March 2025, gold stock returns had a standard deviation of 33.7%, more than double the 15.8% of gold bullion. Gold stocks also experienced a much deeper maximum drawdown, -69% vs. -29%.
Gold stocks are suitable as part of a diversified equity mix seeking higher returns. Unlike gold bullion, gold stocks are not a separate asset class.
5. Gold bullion’s safe haven role is most evident during periods of extreme market turmoil
That’s when positive contributions to portfolio performance are most needed. Our research team analyzed seven periods of market turbulence since 2007, including the financial crisis, the eurozone crisis and Covid-19 pandemic.
Gold bullion had positive returns in every period, a glaring contrast to the negative returns of Canadian stocks. The median outperformance by gold was 23.9%. Gold’s returns surpassed Canadian investment grade bonds during of each of these periods as well. While bonds provided a measure of protection, gold outperformed bonds by 14.3%.
6. Gold could be a critical portfolio asset if stagflation takes root
Both stocks and bonds typically suffer in an environment in which low growth combines with high inflation. Historically, gold has outperformed.
We got a small taste of stagflation in 2022, although it didn’t fully materialize. Nevertheless, gold’s 7.7% return that year far exceeded the 11.7% loss in Canadian bonds, 5.8% loss in Canadian stocks and 12% loss in global stocks.
Investor sentiment
Despite its unique positive attributes, gold also has significant weaknesses. It is not a productive asset and does not generate income. Its returns depend on price, which in turn is driven by supply and demand.
Since gold bullion ETFs have become a critical component of demand, swings in investor sentiment towards gold can have an outsized impact on price. Central banks, which have become steady buyers of gold as they diversify from the U.S. dollar, may ease up on their purchases.
Gold also suffers from extremely long drawdowns and poor performance in periods of global prosperity and peace. Inflation fears subsided in the 1980s and global prosperity and peace seemed possible with the 1991 collapse of the Soviet Union. In 1987 gold entered a secular drawdown period that ran nearly 12 years, with a return of -4.4% annually.
These significant weaknesses in the performance of gold mean that allocations must be modest. This is particularly true for conservative investors, or those in the decumulation phase. With a range of ETFs available, advisors have a low-cost means of giving their clients exposure to this asset class, even with modest allocations.
Michael Nairne, RFP, CFP, CFA, is president and CIO of Tacita Capital Inc., a private family office, and manager for TCI Premia Portfolio Solutions.