• Gold delivers strong long-term returns (9% annualized since 1971) comparable to equities and superior to bonds, driven by diverse demand sources and its ability to perform
• As a powerful diversifier and hedge, gold exhibits low or negative correlation with equities during market sell-offs, reduces portfolio drawdowns, and improves risk-adjusted returns
• Gold serves as an effective inflation hedge, store of value against currency devaluation, and potential climate-risk mitigator due to its scarcity, lack of downstream emissions ….

Harare- In an era marked by economic volatility, geopolitical tensions, and shifting monetary policies, gold continues to affirm its role as a cornerstone of investment strategies. As of the end of 2025, gold has demonstrated remarkable resilience, delivering annualized returns comparable to equities while offering unique protections against uncertainty.

This 2026 edition explores what makes gold a strategic asset, drawing on its historical performance, diverse demand drivers, and portfolio benefits.

What sets gold apart is its dual nature as both a long-term investment and a consumer good. Investors recognize its value in preserving wealth over time, particularly during economic downturns, while its appeal in jewellery and technology provides stability in growth periods.

Since the collapse of the U.S. gold standard in 1971, gold's price in U.S. dollars has risen by an annualized 9%, outpacing bonds and matching stocks. Over the past years ended December 2025, gold has outperformed many major asset classes, including U.S. cash, Treasuries, global stocks ex-U.S., emerging market equities, and commodities.

This performance stems from gold's balanced drivers, an economic component tied to global GDP growth and a financial one influenced by market dynamics.

The World Gold Council's Gold Long Term Expected Return (GLTER) model shows this, projecting returns that exceed inflation, positioning gold as a contributor to portfolio growth beyond mere hedging.

Gold's sources of demand further enhance its resilience. Average annual net demand reached 3,181 tonnes (approximately US$351 billion) over the 10 years to Q4 2025, split between investment (43%), jewellery (29%), technology (6%), and central banks (21%).

Counter-cyclical investment surges during uncertainty, while pro-cyclical consumer demand supports it in expansions. This diversity results in lower volatility than many equities, alternatives, or commodities, with annualized daily volatility since 2005 at levels below crude oil, REITs, private equity, U.S. stocks, and emerging market stocks.

As an inflation hedge, gold has outpaced U.S. and global CPI since 1971. In moderate inflation (2%-5%), it averaged 10% annual returns; in high inflation (>5%), even more.

During deflationary periods, characterized by low rates and financial stress, gold's safe-haven appeal shines. Since 1971, its compound annual growth rate of 9% has preserved and grown capital.

Gold serves as a store of value amid currency fluctuations. Post-Bretton Woods, it has outperformed major currencies and commodities, with above-ground stocks growing at 1.7% annually over 25 years, versus 7.3% for money supply. Quantitative easing post-GFC and COVID-19 amplified this, as gold tracked U.S. money supply expansions, hedging devaluation risks.

Diversification is gold's hallmark. Unlike assets that correlate positively in crises, gold's negative correlation with equities intensifies during selloffs. From December 2007 to February 2009, amid the GFC, gold rose 21% while risk assets plummeted.

In 2022 and 2025 equity pullbacks, it remained positive. Over various crises, from the dot-com bubble to tariff uncertainties, gold averaged positive returns, reducing portfolio losses. Yet, in recoveries, it correlates positively, benefiting from wealth effects and inflation expectations.

Liquidity bolsters gold's appeal. Physical holdings by investors and central banks total US$10.9 trillion as of Q3 2025, plus US$1.5 trillion in derivatives. Daily trading volumes averaged US$361 billion in 2025, surpassing many assets like euro/sterling or the Dow Jones. OTC spots (US$180 billion), futures (US$174 billion), and ETFs (US$7 billion) ensure accessibility, even in stress, unlike illiquid alternatives.

These attributes translate to superior portfolio impact. Over the years to December 2025, adding 2.5%-10% gold to a hypothetical USD portfolio (50% stocks, 40% fixed income, 10% alternatives) boosted risk-adjusted returns and cut drawdowns.

For instance, a 5% allocation over 20 years raised annualized returns from 6.7% to 7.0%, volatility from 9.9% to 9.6%, and risk-adjusted returns from 68.1% to 73.2%. Mean-variance optimization shifts the efficient frontier upward, suggesting optimal allocations rise with portfolio risk up to 70% for aggressive mixes.

Gold's ESG credentials add modern relevance. Responsible mining mitigates impacts while contributing economically via wages, taxes, and infrastructure in host communities. It advances UN Sustainable Development Goals and reduces portfolio carbon intensity, lacking downstream emissions. Gold performs well in climate scenarios, insulating against volatility or carbon pricing.

Yet, risks exist. Gold yields no cash flows, relying on price appreciation, though its track record is strong. Volatility can reach 30% swings, but its asymmetric profile (outperforming in equity falls more than underperforming in rises) mitigates this. Supply-demand dynamics ensure scarcity, but medium-term underperformance occurs.

Therefore, gold's evolution from Eastern wealth symbol to global portfolio staple reflects its adaptability. With 9% annualized returns since 1971, low correlations, and liquidity, it diversifies effectively amid uncertainty.

As equity and bond concerns persist, a strategic allocation, typically 2.5%-10% remains prudent for 2026 and beyond.

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