Gold: Unique in every way

By: Nitesh Shah, Director of Research, WisdomTree Europe and Jeremy Schwartz, CFA, Global Chief Investment Officer

Gold is a special asset. Simultaneously a commodity and a foreign exchange instrument. Cyclical and defensive at the same time. Used as a store of value and medium for exchange for millennia. With references to the metal in the Torah, Bible, Qur’an and Bhagavad Gita, its historical allure to humans verges on empyrean. 

Different and Resilient

In the financial world, its unique behavioral traits1 make it a perfect diversifier to a portfolio:

  • It behaves differently to equities, bonds, commodities and crypto currencies
  • It is a great inflation hedging instrument
  • It is a great geopolitical shock hedging instrument
  • It is a great financial shock hedging instrument
  • It performs well in both recessions and strong expansions

This balance between downside protection and capacity to generate positive return over the long term is unique to gold. As illustrated in figure 1, returns for most assets are broadly proportional to risk. Assets with high equity-like returns over the last 20 years have exhibited downside capture (vs. equity markets) of around 100%. Assets with lower downside capture, like fixed income, tend to have lower returns too.

Gold bucks these trends: it has exhibited equity-like returns of 8.5% per annum over the last 20 years with very minimal downside capture. Gold therefore is a uniquely suited asset to increase diversification and reduce risk in a portfolio without weighing on long-term performance.

Figure 1: Long-Term Performance and Downside Risk for Different Asset over the Last 20 Years

The Perfect Diversification Tool…

As the late Markovitz said, the only free lunch in the world of investing is diversification. That diversification is enhanced by low correlations. As figure 2 illustrates, gold’s correlations to equities and bonds are low.

Figure 2: Asset Correlation Matrix

…yet Shunned by Many Investors Today

Judging by flows out of physical gold exchange-traded funds (ETFs) over the past three years, professional gold investors appear to have turned their backs on the metal (figure 3). With repeated attempts to break above the $2,050 per ounce mark, there has been no tailwind from the ETF market. If gold successfully gets above that level, we could see ETF investors return and that could fuel a stronger rally.

Figure 3: Gold Price and ETP Holdings

Gold Poised to Reach a New High

Although soft landings have historically not provided the best setting for gold to shine, in this rate cycle we have seen gold hit a fresh high in December 2023, when markets were expecting a decisive Federal Reserve (Fed) pivot in 2024. Some of those gains have been given back as markets reassessed the Fed’s urgency, but our Gold Model points to gold rising to a higher high by the end of this year, on account of bond yields declining and the U.S. dollar depreciating. 

Gold could reach $2,210 per ounce, close to 10% higher at the time of writing (February 6, 2024). Achieving the lauded soft landing is easier said than done (and that is why we have so few observations to look at). We could face a bumpy road in 2024, with the Fed and markets clearly having a different view of the rate path ahead of us. Gold’s hedging capabilities may once again prove to be the antidote to volatility elsewhere.


Despite the strategic and increasingly tactical benefits of having gold in a portfolio, finding a space for gold is always a challenge. With bond prices having fallen so much in October 2023, many investors have opportunistically filled the defensive portion of their portfolios with Treasuries, leaving less room for gold. In a year where rate cuts are widely expected, investors are keen to maintain a large exposure to equities.

This post first appeared on February 22nd, 2024 on the WisdomTree blog



U.S. investors only: Click here to obtain a WisdomTree ETF prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

There are risks involved with investing, including possible loss of principal. Foreign investing involves currency, political and economic risk. Funds focusing on a single country, sector and/or funds that emphasize investments in smaller companies may experience greater price volatility. Investments in emerging markets, currency, fixed income and alternative investments include additional risks. Please see prospectus for discussion of risks.

Past performance is not indicative of future results. This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein. Neither WisdomTree nor its affiliates, nor Foreside Fund Services, LLC, or its affiliates provide tax or legal advice. Investors seeking tax or legal advice should consult their tax or legal advisor. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.

The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or component of any financial instruments or products or indexes. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each entity involved in compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties. With respect to this information, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including loss profits) or any other damages (

Jonathan Steinberg, Jeremy Schwartz, Rick Harper, Christopher Gannatti, Bradley Krom, Kevin Flanagan, Brendan Loftus, Joseph Tenaglia, Jeff Weniger, Matt Wagner, Alejandro Saltiel, Ryan Krystopowicz, Brian Manby, and Scott Welch are registered representatives of Foreside Fund Services, LLC.

 WisdomTree Funds are distributed by Foreside Fund Services, LLC, in the U.S. only.

You cannot invest directly in an index.