Private investors have many ways to diversify a classic stock/bond portfolio. The simplest approach with good risk diversification is through indices – for commodities, for example. However, gold as an asset class tends to be underrepresented in commodity indices such as the Bloomberg Commodity Index or the S&P GSCI Index, at 14.9 and 7.2 percent, respectively. This becomes clear when looking at the contribution individual commodity groups make to portfolio diversification and performance. That is exactly what the World Gold Council, the gold industry's trade association, examined in its study "Gold: The most effective commodity investment," published in early August – with revealing findings.
Gold vs. other commodities: better performance, lower volatility
The study compared gold's price performance with that of industrial metals, silver, agricultural products, livestock, energy (oil, gas), and the commodity sector as a whole – over one-, three-, five-, ten-, and 20-year periods (June 2006 to June 2026). Except for the past three years, when silver performed best, gold consistently outpaced all other commodities. Gold also fared better than most other commodities in terms of volatility: over the past 20 years, silver recorded volatility of 33.54 percent, roughly double gold's 17.52 percent.
In times of crisis, gold is the top choice among commodities
The study also compared the performance of gold and the commodity sector as a whole – based on the Bloomberg Commodity Index – during the ten worst quarters for the MSCI USA Index (a proxy for the US stock market) between 1974 and 2018. In eight out of ten cases examined, gold did significantly more to reduce portfolio losses than the commodity sector as a whole. The study concludes that a gold allocation via a commodity index alone is not enough to fully capture the metal's benefits within a portfolio. Market professionals instead recommend a gold allocation of 5 to 10 percent.