Investment advisors usually recommend adding 5 to 10 percent gold to a portfolio to optimise risk-adjusted returns. A new World Gold Council study shows that the benefits of gold can not only be demonstrated in virtually any investment portfolio, but the exact allocation for each risk type can also be determined quantitatively. Another highly interesting finding of the study is the fact that over the last 20 years, gold has reliably improved not only the risk-adjusted but also the unadjusted annual returns of investor portfolios.
Adding gold exposure to portfolios: risk-adjusted returns rise, volatility decreases
The publication ‘Relevance of Gold as a Strategic Asset: 2026 Edition’ examined the effects of a 5 percent gold addition to typical equity/bond portfolios over the last three, five, ten and 20 years. Across all periods, gold allocation had a positive effect, with overall volatility decreasing across all measured periods, while the temporary maximum drawdown was less severe than without gold. At the same time, risk-adjusted returns were higher across all periods than without gold allocation, as were unadjusted returns. This was particularly noticeable over the last three years, mainly due to the extended gold price rally.
Which degree of gold allocation for which portfolio?
The study also examined the optimal level of gold allocation for each risk type. It measured the risk-adjusted performance of portfolios typical for investors with low, average and high risk aversion. The results: for a portfolio with a strong focus on safety, consisting of 65 per cent bonds and 30 per cent stocks, a gold allocation of just under 5 percent is sufficient. For a standard portfolio made up of 42 percent stocks, 43 percent bonds and just under 9 percent alternatives, an addition of 6 percent gold is optimal. And finally, an aggressive, i.e. risk-tolerant portfolio consisting of 55 percent stocks, 22 percent bonds and 13.6 percent alternatives would benefit most from a gold allocation of 9.3 percent.