A specialist fund manager has lauded the stability an allocation to gold can provide to investment portfolios due to the nature of its interaction with other popular asset classes.
“One of the really interesting elements to gold is that it is negatively correlated to stocks when stocks fall and positively correlated to stocks when stocks rise. So what you tend to find, and this doesn’t necessarily happen every day or every month or every year, but if you look at a long enough data set, you’ll find that in the period when stock markets go up, [the value of] gold will tend to go up as well. It won’t go up by as much, but it will come along for the ride,” ABC Bullion general manager Jordan Eliseo told delegates at the recent SMSF Trustee Empowerment Day 2025, co-hosted by smstrusteenews and the SMSF Association.
“But most importantly when stocks fall, particularly when they’re sold off most aggressively, gold tends to do very well.
“So that’s why it helps to balance a portfolio.”
Eliseo acknowledged gold in its own right can experience volatility like equities, but explained how the correlation between the two types of assets can be beneficial for investors.
“[If you apply] the old maths equation and you take two negatives and multiply them together, you get a positive, that is how gold and equities tend to work together in a portfolio and that stability is a really important part of gold’s demand story,” he said.
According to Eliseo, the outlook for gold is positive in the short term, especially due to one segment of the market commonly overlooked when assessing the performance of the asset class.
“If we look at the outlook for precious metals, and to be clear gold is not going to deliver 40 per cent returns year on year as it has in the last 12 months, but I think it’s pretty clear if you look at the balance of probability, this bull market has a fair way to play out,” he observed.
“If we start with jewellery, it is still a huge part of the gold market. If you look at gold jewellery demand, it is positively correlated to rising real income. So if you look at what is going on in the developing world, such as China, India and other parts of Asia and the Middle East, we find these economies growing, we find disposable incomes are growing and spending power is increasing and off the back of that people in those countries will buy more jewellery.
“That doesn’t impact price from day to day or week to week, but is an important component of overall gold demand.
“If you take those regions as a whole, there is roughly 2000 tons of gold purchased each and every year and that’s about 60 per cent of all the gold mined in any given year.
“[This activity is recognised] before one central bank has even added one more ounce of gold to its reserves or before one Western investor decides to include gold in their portfolio.”