Making the case for Gold

For centuries gold has been seen as the ultimate store of wealth, and for many people in developing countries around the world, gold is still seen as the best way to preserve your capital. Some of the best things about holding gold are that it offers a counterbalance to the volatile equity markets and that it has been a great way to protect your capital against inflation. But gold had a 66% rise in 2025, and has come down 25%+ from its 2026 highs, so has gold suddenly become highly volatile? Is it no longer a good way to protect your money from the ravages of inflation?

The average annual inflation rate in NZ over the past 100 years has been 4.27%. The average annual gold return over the past century has been 6.7%. So, if you are looking at the past 100 years, then yes gold has protected you against inflation. But we should be more interested in the future than the past, so you have to wonder whether gold has run too fast. As I said earlier, it has already pulled back 25%+ from its 2026 peaks, so I would argue while it was overvalued at the start of the year, it is no longer. Although certainly not undervalued like the early 2000s, I believe gold is more fairly valued now. Important to note is that gold has an inverse correlation to the US dollar of -0.85. So, by holding gold in USD, like a physical bar or the GLD ETF, so are automatically getting a USD hedge.

A good way to look at the volatility of gold is to look at the beta of GLD, which is 0.68. This means that the GLD ETF (which tracks the price of gold bullion), has a volatility 32% less than the equity market. If you look at the last year, gold is up 18.98% while the equity market is up 20.12%. So, in the short term it does look like gold is just as volatile as the equity market. But over the long-term gold has shown itself to be a safe haven from the volatile equity market. We have seen a severe 25% drawdown since January, but I believe that this has brought gold down to about where it should historically be i.e. its intrinsic value.

Now the question becomes how you buy gold; it can be in the physical form or as part of an ETF. To buy physical gold in NZ you can go through NZ Mint or Buy Bullion. They will both charge around a 3% mark-up from the spot price. If you buy smaller quantities though, like a gram, the mark-up will be closer to 20%. If you buy an ETF, like the GLD or GOLD on the ASX, you will buy closer to the spot price, but you will be charged management fees. For example, with GOLD on the ASX, this fee is 0.4%.

I think that gold remains a good store of wealth. And most analysts recommend that investors have a 5-10% weighting to gold in their portfolio. The spot price in USD is currently $3,981. The average prediction by year-end is $5,600 USD. So, this implies around a 35% upside. But even if this predicted target is not reached, I have no doubt that over the long-term you will do fine by having a portion of your portfolio allocated to gold.