Gold: How it performs as an investment and when we use it in portfolios

Why is gold seen as a ‘safe haven’ investment? 

Gold is viewed as a safe haven asset primarily due to its stability and ability to hold its value during economic uncertainty. It is not just psychological and cultural factors that draw investors to it, it is a tangible asset with intrinsic value. To start with, it is scarce, costly to mine, and has a limited supply. On the demand side, it is used extensively in jewellery, held in central bank reserves, and is a component in electronics because it is an excellent conductor and resistant to corrosion.

Due to gold being universally recognised and traded, it is highly liquid with a wide market.

It is also used as a hedge against inflation, because throughout history, it has retained its value even as inflation eroded the purchasing power of currencies.

Historically, gold has performed well during periods of market volatility, most recently in late April 2025, rising to an all-time high of $3,500 per troy ounce following market reaction to US trade policy after Donald Trump’s Liberation Day tariffs.

Why does gold behave differently to other assets?

Gold has low correlation with economic activity, so unlike bonds and stocks, the price is not related to economic growth or earnings from companies. And as a tangible asset, it does not rely on third parties, such as a bank or government, to set and uphold its value. This helps it provide stability during periods of economic uncertainty where other financial instruments may experience volatility.

Why has gold done so well recently?

Gold prices surged more than 50% from March 2024 to early 2025, driven by the economic and geopolitical environment. Central banks have been purchasing gold at a heightened rate to build their buffers to diversify away from the US dollar, and guard against recession fears and geopolitical tensions. Additionally, concerns among investors of ballooning fiscal deficits in many major developed economies supports the case to own gold.

Is gold included in any Arbuthnot Latham investment services?

Yes, we hold gold in our All-Seasons Portfolio. The All-Seasons service is designed to deliver returns above inflation while managing volatility. The portfolio invests across a broad range of assets to help navigate different economic cycles, such as strong growth, high inflation, or recessions.

Gold plays a key role in the strategy given its low correlation with traditional investments and hedge against inflation.

Do you physically hold gold when you invest in it?

You can buy and hold physical gold in the form of gold bars, jewellery, or coins, however, the issue with this is both storage and security. Therefore, most investors choose to invest in gold via exchange traded products (ETP) where these investments track the price of gold without the investor personally having to store the gold themselves. This is how we invest in gold for the All-Seasons Portfolio. If the ETP is backed by physical gold, it means that the fund assets are primarily invested in gold reserves rather than alternative investments.

There are other ways to trade gold, such as futures and options for more sophisticated investors. Futures and options are financial contracts that derive their value from an underlying asset. Futures obligate the buyer or seller to trade the asset at a set date and price, while options give the right - but not the obligation - to do so.

What are the benefits and risks of investing in gold?

Benefits:

1) Hedge against inflation – throughout history gold has retained its value when inflation has eroded the purchasing power of currencies.
2) Safe haven asset – given its unique features it is typically held during volatile periods.
3) Diversification in portfolios – low correlation with traditional investments and therefore helps in reducing overall risk in an investment portfolio context.

Risks:

1) Gold does not provide any income or have earnings associated with it, which you typically get in the form of company earnings, dividends and interest from other investment assets such as stocks or bonds.
2) Storage and security costs – if held physically, there is a cost with storing and keeping it safe.
3) Volatility – as with other financial assets, on a standalone basis gold price can still be volatile depending on economic and geopolitical events.

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