Gold has once again captured the spotlight as prices reach record heights, both globally and in Australian dollar terms. But beyond the headlines, its worth understanding why investors turn to gold, how it fits within a broader investment strategy, and what its current performance means for Australian portfolios.
Why People Invest in Gold
Gold is more than a precious metal, its a financial asset with unique qualities.
- Store of Value: Gold has been used for centuries to preserve purchasing power. It doesn’t rely on any government or company and holds its value over long periods, particularly during inflationary environments.
- Safe-Haven Asset: In times of market turbulence or geopolitical risk, investors often seek safety in gold. Historically, it tends to move differently from risk assets like equities, offering a cushion when markets turn volatile.
- Currency Hedge: For Australian’s, gold’s pricing in US dollars provides a natural hedge. When the Australian dollar weakens, gold’s local price often rises, even if its global price remains steady.
- Portfolio Diversifier: Gold typically shows low or negative correlation with shares and bonds, meaning it can reduce overall portfolio volatility.
Gold’s Role Compared to Other Investments
| Assets | Gold’s Advantage | Trade-off |
| Equities | Tends to hold value during downturns; acts as a defensive hedge. | No dividends or income. |
| Bonds | Performs better when real interest rates are low or negative. | Can underperform when yields rise. |
| Commodities | Supply is stable; value not tied to industrial cycles. | Smaller industrial demand; sentiment driven. |
| Alternatives | Highly liquid, simple exposure. | Volatile in risk-on markets. |
Gold in the Australian Context
Australia is one of the world’s largest gold producers, and local interest in the metal has grown as prices hit record highs. Gold has become one of the nation’s key resource exports and is expected to rival LNG in value by 2026. Australian investors can access gold in several ways, including physical bullion and coins, ETFs, and mining company shares listed on the ASX. The recent weakness in the Australian dollar has also boosted the local price of gold, making it even more appealing for investors seeking to preserve purchasing power.
Investors looking to gain exposure can do so through different channels. Physical bullion and coins provide direct ownership but require storage, insurance, and careful consideration of purity and resale. Gold ETFs and managed funds allow for simple, liquid access to gold’s price movements without the need to hold it physically, as these funds typically track the market and are often backed by physical reserves. Finally, investing in gold mining stocks offers leveraged exposure to price changes, through these shares come with operational and market risks linked to company performance and production costs.
Strategic Role in a Portfolio
Most investors view gold as a risk management tool rather than a growth driver. A moderate allocation (often cited around 5-10% of a diversified portfolio) can help hedge against inflation, currency weakness, or sharp market correction. Timing matters less than maintaining a consistent exposure aligned with your investment goals.
Gold plays a valuable role in diversifying portfolios, preserving value and offsetting risk. It’s not a guaranteed winner, but it remains a trusted store of value when economic or political conditions become uncertain. For Australian investors, gold’s global relevance combined with domestic exposure opportunities make it a meaningful component of a well-balanced strategy.
Disclaimer
This content is for informational and educational purposes only and should not be taken as financial advice.