Why Gold Still Holds Its Place in Modern Portfolios

From central bank vaults to household savings, gold has occupied a distinctive place in the financial world for centuries. Even today, in markets filled with complex financial instruments and digital assets, the yellow metal continues to find space in many investment portfolios.

A store of value that has stood the test of time

Gold’s link with wealth is nothing new. Long before stock exchanges or modern banking systems came into existence, people relied on gold to preserve purchasing power. Across cultures and generations, it became a form of savings people trusted during uncertain times.

That perception has largely endured. Many investors still allocate a portion of their portfolio to gold because it behaves differently from most traditional financial assets.

Equities typically move in response to corporate performance and economic growth, while bonds are influenced heavily by interest rates and central bank policy. Gold, by contrast, tends to react to broader forces such as inflation expectations, currency movements and geopolitical tensions. As a result, its price does not always move in tandem with stocks or bonds.

This independent behaviour helps explain why gold is often seen as a stabilising asset. During periods of market turbulence, it has frequently shown an ability to remain relatively resilient.

Why diversification still matters

Diversification remains one of the core principles of investing. Rather than relying on a single asset class, investors spread capital across different investments to manage risk. Gold has traditionally played a role in that mix.

Historically, gold has shown relatively low correlation with equities and fixed-income instruments. In simple terms, it does not always rise or fall alongside them. When markets turn volatile, this difference can help cushion the overall portfolio.

For long-term investors, this balancing effect is one reason gold continues to sit alongside equities, bonds and other assets.

Renewed attention during uncertain periods

Gold’s safe-haven reputation has developed over decades of global events. Economic stress, geopolitical tensions and inflationary pressures have often led investors to increase their exposure to the metal.

Recent global developments have once again drawn attention to gold. Shifting economic conditions, geopolitical uncertainty and persistent inflation concerns in several regions have encouraged investors to revisit assets known for relative stability.

When uncertainty rises, investors often turn to assets with a long record of resilience — and gold has demonstrated that quality across multiple economic cycles.

Central banks are increasing their reserves

Another signal of gold’s continuing relevance comes from central banks. Over the past few years, monetary authorities across the world have steadily increased their gold holdings.

Data from the World Gold Council shows central banks purchased more than 1,000 tonnes of gold each year between 2022 and 2024. In total, official-sector purchases exceeded 3,200 tonnes during this period — one of the strongest phases of central bank buying in decades.

Global central bank gold reserves have consequently risen to roughly 32,000 tonnes. These purchases reflect a broader effort by countries to diversify their reserves and reduce reliance on any single asset or currency.

Investing in gold has evolved

While gold itself has remained unchanged, the ways investors access it have evolved considerably.

For decades, individuals primarily bought gold as jewellery, coins or bars. These forms remain culturally important in many households. However, physical gold also brings practical considerations such as storage, insurance and verifying purity.

Financial markets have therefore developed products that allow investors to gain exposure to gold without physically storing the metal.

The growing popularity of Gold ETFs

Gold Exchange Traded Funds (Gold ETFs) have become one of the most convenient ways to invest in gold. These funds track the price of gold and trade on stock exchanges much like shares.

Each ETF unit typically represents a small quantity of gold held by the fund. This structure allows investors to benefit from gold price movements without the logistical challenges of owning physical gold.

Venugopal Manghat, Chief Investment Officer at HSBC Mutual Fund, believes this format has made gold investing far more practical.

“Gold has historically served as an effective portfolio diversifier, particularly during periods of market uncertainty or elevated inflation. Gold ETFs allow investors to access this asset class in a transparent and efficient manner without the operational challenges associated with holding physical gold,” he says.

Because Gold ETFs trade on exchanges, investors can buy or sell units during market hours, providing both liquidity and transparency.

Access through Gold Fund of Funds

Not every investor prefers trading on stock exchanges or maintaining a demat account. For them, Gold Fund of Funds (FoFs) provide another route.

A Gold FoF is a mutual fund scheme that invests primarily in Gold ETFs. This structure allows investors to gain exposure to gold through the familiar framework of mutual fund investing.

Investments can typically be made through lump-sum contributions or systematic investment plans, making the process accessible to a wider group of investors.

A supporting role in modern portfolios

For most investors, gold is not meant to replace equities or fixed-income assets. Instead, it usually plays a complementary role within a diversified portfolio.

By combining growth-oriented assets such as equities with stabilising assets like gold, investors can build portfolios that are better prepared to navigate changing market conditions.

Even as financial markets continue to evolve, gold remains an asset many investors still regard as an important component of a well-diversified portfolio.

Source: World Gold Council, Bloomberg. Data as on Feb 28, 2026 or latest available. 

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