Over the past 25 years, gold has performed surprisingly well to the S&P 500. At times, gold has even beaten traditional portfolios like 60/40 or 100% equity. However, most financial advisors still recommend a limited gold presence in a portfolio, typically around 5-10%.
This article examines the reasons behind this recommendation and assesses whether, in light of historical data, it would make sense to increase the percentage of gold in a long-term investment strategy.
I am not a financial advisor:
The information provided does not constitute a solicitation for the placement of personal savings. The use of the data and information contained as support for personal investment operations is at the complete risk of the reader.
Over the last 25 years, essentially between 2000 and 2025, the most important asset classes have had the following average annual compound returns:
Gold: ~7.8%
S&P 500: ~8.5%
10Y Treasuries: ~3.9%
60/40 Portfolio: ~6.5%
In detail, between 2001 and 2011 gold experienced a golden decade (literally), going from around $270/oz to over $1,800/oz, with an average annual return of over 17%. This period coincides with the bursting of the dot-com bubble, the terrorist attack on the Twin Towers, two wars, the global financial crisis and an increasingly expansionary monetary policy. Even subsequently, between 2019 and 2023, gold grew by around 40%, exceeding $2,000/oz on several occasions. In comparison, the S&P 500 had strong swings, with significant drawdowns (e.g. -34% in 2020 and -20% in 2022).
Cumulatively, someone who invested $10,000 in gold in 2000 would be left with about $60,000 today. An equivalent investment in the S&P 500 (with dividends) would bring in about $75,000. But with one key difference: gold has achieved these results without exposure to corporate risk and with less systemic correlation. Additionally, while the S&P 500 has focused on a few tech mega-caps in recent years, gold has maintained a more neutral profile and is less subject to sector rotations.i anni, l’oro ha mantenuto un profilo più neutro e meno soggetto a rotazioni settoriali.
#2. The 60/40 portfolio and role of gold
The classic 60% stocks / 40% bonds portfolio has been the standard for balanced investing for decades, offering a good compromise between growth and stability. However, over the past 20 years, and particularly in the period 2021-2023, this combination has shown clear limits. In 2022, for example, both stocks and bonds fell simultaneously, causing the 60/40 portfolio to record one of the worst performances in recent decades: -17% over the year. In this scenario, gold maintained a positive performance (+1.5%), protecting capital.
Studies on the historical performance of 50/40/10 (equities/bonds/gold) portfolios show interesting results: an increase in the Sharpe ratio from 0.52 to 0.61, a reduction in the maximum annual loss from -23% to -17%, and an overall volatility that has dropped by about one percentage point. Furthermore, gold has often acted as a “safety valve” in times of high inflation (e.g. 2021-2022), compensating for the loss of purchasing power of nominal bonds. Simulations over longer horizons (30 years) also indicate that a small exposure to gold would have improved the resilience of the portfolio without compromising its expected return.
Another advantage of gold in the 60/40 is its low correlation with other assets. On average, gold has a correlation of about 0.1 with stocks and 0.2 with bonds, making it a valuable tool for diversification.
One of the main reasons why gold is penalized in academic models is its “non-productive” nature: it does not pay dividends, interest, or coupons. This means that its return comes exclusively from price appreciation, which can be erratic or influenced by external factors (inflation, rates, geopolitics). In addition, gold has a historical annual volatility of around 15%, comparable to that of stocks, which makes it less attractive for those looking for a “safe asset” in the classic sense.
However, it is important to distinguish between risk and uncertainty. Gold tends to outperform when other assets fail, offering protection in times of systemic crisis. During the 2008 crisis, for example, while the S&P 500 fell more than 50%, gold gained nearly 6%. Even in 2020, during the initial COVID panic, gold showed a much faster recovery than stocks.
Furthermore, in environments of negative real bond yields (as in the 2020-2022 period), gold has often outperformed, attracting investors looking for alternative stores of value. Another interesting aspect is that, despite not generating flows, gold also has no issuer risk: it is a physical asset, universally recognized and with global liquidity.
#4. The academic and cultural bias
Today’s portfolio placement, based on models such as CAPM (a theoretical financial model that serves to determine the expected return of an investment as a function of its risk) or the Markowitz efficient frontier, tends to favor assets with cash flows, such as stocks and bonds. Gold, being a “non-productive” asset, is often excluded or relegated to a marginal coverage function. Even major pension funds and independent consultants prefer regulated and income-generating instruments, leaving little room for an asset such as gold, considered more speculative.
In reality, this vision is also the result of a cultural bias. In Western countries, gold is often seen as a “collectible” asset or for times of crisis, while in cultures such as India or China it represents a concrete and accepted form of family savings. Interestingly, globally, central banks are increasing gold reserves: 2022 and 2023 saw the largest increase in official purchases in the last 50 years, with more than 1,100 tons added in a single year.
This should give pause for thought: if central banks themselves diversify into gold to reduce dependence on the dollar or geopolitical instability, why should private investors limit it to 5-10%?
#5. Popular alternative models with gold
There are several theoretical or practical portfolios that include a percentage of gold well above 10%. One of the best known is Harry Browne’s Permanent Portfolio, created in the 1980s: 25% gold, 25% stocks, 25% long-term bonds, 25% cash. This portfolio has had stable performances with low volatility (less than 7% per year) and maximum retracements around -10%, even during major crises.
Another model is Ray Dalio’s All Weather Portfolio (Bridgewater Associates), which includes a 7.5% to 15% allocation to gold and commodities. This approach is based on the idea that no asset performs well in all macroeconomic environments, and that it is necessary to balance the portfolio based on inflation, growth, rates and deflation.
Finally, the concept of Risk Parity proposes a division of risk (and not capital) between uncorrelated assets. Gold, in this scheme, takes on a more important role because it is one of the few instruments that protects well against both inflation and deflation.
Historical simulations of these portfolios demonstrate that increased exposure to gold not only reduces overall volatility, but also improves the risk/return profile in more volatile economic cycles.
#6. Rethinking the 10% threshold
Given its historical performance, countercyclical function and growing global macroeconomic instability, an exposure to gold well above 10% seems more than justified. It is not necessarily a matter of replacing stocks or bonds, but of improving the resilience of the portfolio. A share between 15% and 20% may be rational for those seeking stability, protection against extreme events and a store of value in the long term.
Of course, the allocation depends on the investor’s risk profile, time horizon, and personal goals. But the data shows that gold has proven to be more than just a hedge. In an increasingly uncertain world, perhaps it’s time to re-evaluate the old yellow metal not just as a safe haven, but as a strategic pillar of modern diversification.
In conclusion, I would like to dwell on this reasoning: if gold were to cover strong market or systemic crises, what sense would there be in holding less than 50% of it in your portfolio? What sense would there be in saving only 15% or 20%? Of course, a lot depends on the risk profile in relation to the time for which you are willing to bear it, but nowadays I no longer find it such a risky hypothesis.
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