Gold – a portfolio diversifier and hedge – suffered an ugly second quarter, but investors should think twice before planning to jettison the precious metal from their portfolios. Gold futures shed more than 13% in the second quarter – the worst since 2013. The precious metal is typically thought of as a safe-haven asset for investors, but it has seen its share of turbulence amid heightened geopolitical tensions. For starters, gold futures have fallen 21% since the start of the Iran war. That comes after gold prices touched record highs early in the year. Gold futures also tumbled 0.2% during Wednesday’s trading as oil prices rose and the Middle East conflict worsened. On that day, the S & P 500 dropped about 0.5%. @GC.1 .SPX 3M mountain The S & P 500 and gold futures in the past three months While the action is enough to raise worries that gold’s hedging ability is losing its shine, investors may want to rethink their expectations for the precious metal, as well as its place in their portfolio. “The hedging role is there, but it’s probably a little more inconsistent than you would think,” said Roger Aliaga-Diaz, Vanguard’s global head of portfolio construction. “It’s not a rule that every time there’s an equity drawdown that you’ll have gold there to offset that.” Gold’s portfolio role There’s a case to be made for gold in that it’s historically held up in periods of major geopolitical shocks. Gold has averaged a four-week return of 1.8% and a median return of 3% in the run-up to and during major geopolitical shocks between 1985 and 2024, an analysis by JPMorgan Private Bank found. Meanwhile, the 10-year Treasury and stocks both have posted average declines of 1.6% and median losses of 1.9%. The metal is also a hedge against the dollar, according to Aliaga-Diaz. “When you have situations where perhaps the value of the dollar, the stability of the dollar and the credibility of the Fed are called into question, that’s probably when you will see flows going into gold.” The mistake that investors make is expecting gold prices to move consistently in a way that will directly counter declines in stocks, advisors said. “I don’t see gold as a direct hedge against the stock market, but it’s a great hedge against fear,” said Sam Huszczo, certified financial planner and founder of SGH Wealth Management in Lathrup Village, Michigan. “It’s a fine diversifying tool in a small amount.” Investors also tend to overlook the precious metal’s volatility, which can resemble stocks, Aliaga-Diaz said. Because of that, investors will want to keep their gold holdings manageable, with financial advisors largely recommending no more than 5% of an allocation. Long-term goals If your gold holdings took a hit in the second quarter, it doesn’t necessarily mean that you should dump the entire asset allocation. But it does help to think about the metal’s role in your long-term plan, your appetite for volatility and how much of it you’re holding. “You want to think about it in a longer-term time frame; you can’t look at one quarter in isolation,” said Rafia Hasan, chief investment officer of Perigon Wealth Management. She recommends keeping gold to a 1% to 2% allocation. “I think there’s potentially a role for commodities as a diversifier more broadly,” she added. “That said, commodity prices tend to be more volatile, and I think this last quarter is certainly an illustration of that.”
