An ounce of gold is still an ounce of gold, and that’s the point

While thousands of companies and hundreds of currencies have gone to zero over the past century, an ounce of gold remains an ounce of gold. That simple fact sits at the heart of why gold continues to matter, and why, amid persistent inflation concerns, geopolitical tensions, and deepening uncertainty around global growth, the question of its role in a portfolio has become impossible to ignore.

What gold is, and what it is not

At its core, gold is a finite, physical commodity. Unlike equities, it does not generate earnings or pay dividends, and unlike bonds, it provides no form of income. Its value is not based on cash flows, but on what investors are willing to pay for it at any given time.

Its enduring appeal rests on a few key characteristics: a historically recognised store of value, underpinned by limited supply and continued demand, and a demonstrated ability to retain purchasing power in environments where currencies weaken, or inflation erodes the real value of money.

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Gold should not be viewed as a growth asset. It is not there to compete with equities over the long term. Its purpose is to behave differently when traditional assets come under pressure, and on that measure, it has a strong case to make.

Gold through the ages

Gold’s role as a store of value is rooted in centuries of history. Its appeal lies in its scarcity, durability, and universal recognition. But perhaps its most important characteristic is one that is easy to overlook – it is not someone else’s liability.

Unlike a bond, which depends on a borrower’s ability to repay, or a share, which relies on a company’s profitability, gold’s value does not depend on any institution or issuer. That gives it a unique and irreplaceable place within a portfolio.

Historically, gold has tended to perform well during periods of crisis. In the 1970s, high inflation and currency weakness drove a significant increase in the gold price.

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During the global financial crisis in 2008, gold held up far better than equities. Conversely, during strong equity bull markets such as the 1990s, gold generally lagged, as it tends to in environments characterised by strong growth, low inflation, and rising real interest rates, where income-generating assets are simply more appealing.

A strengthening US dollar can add further headwind, as gold is priced in dollars and becomes more expensive for non-dollar investors.

Different ways to access gold

Not all gold investments behave the same way, and the distinction matters more than many investors realise.

Holding physical gold, such as Krugerrands, or investing through a gold-backed exchange-traded commodity provides direct exposure to the metal itself. This is generally considered the purest form of investment and is often used as portfolio insurance, particularly against extreme or unexpected market events.

Gold mining companies are fundamentally different. While their earnings are linked to the gold price, they are operating a business, which introduces a range of additional risks – rising input costs, operational challenges, labour disruptions and capital allocation decisions.

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Mining shares tend to behave more like equities than gold itself – they can outperform significantly in bull markets due to operational leverage, but can underperform just as sharply in downturns. They are best understood as equity investments with commodity exposure, rather than a pure hedge.

Is gold a reliable hedge?

In the short term, gold can be volatile and does not always behave as investors expect. During periods of acute market stress, gold often falls initially, because investors sell what they can, not what they want. When real interest rates are rising, gold offers no income and becomes less attractive relative to cash or bonds.

Over the long term, however, the picture is more compelling. Gold has demonstrated value as a hedge through its negative correlation to traditional assets and its ability to preserve purchasing power.

Since 1971, it has outpaced both the US and global consumer price indices, demonstrating a genuine ability to protect investors against inflation.

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During periods of geopolitical instability, gold acts as a neutral reserve asset. Central banks have become increasingly important buyers in recent years, using gold to diversify reserves and reduce reliance on the US dollar – a trend particularly evident in emerging markets, where reserve diversification has become a strategic priority.

This connects to one of gold’s most enduring roles – acting as a hedge against monetary debasement. When central banks expand money supply to stimulate economies or manage government debt, the purchasing power of paper currency is diluted. Because gold’s supply is finite and cannot be created on demand, it tends to retain its value through that process.

Gold is not becoming more valuable in real terms, it’s simply reflecting the gradual erosion of what paper currencies are worth.

A portfolio stabiliser, not a return driver

Gold’s primary role is to provide diversification and protection during periods of uncertainty, not to generate long-term growth. That’s not a limitation, it’s the point. A portfolio built only for good times is not truly resilient.

In a world that is becoming increasingly digital and complex, there is a fundamental value in the physical and the simple. Gold doesn’t require a password, a functioning power grid, or a government’s promise to exist.

Ultimately, gold earns its place in a portfolio not by outperforming in good times, but by providing resilience when it is needed most.

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Liza Brink is an associate investment analyst at WealthStrat.