Global Market Portfolio

Gold takes the diversification crown

Gold’s role in portfolios is evolving. Despite sharp volatility and questions over its safe-haven status, gold remains a powerful diversifier, supported by strong ETF, bar and coin demand, especially across Asia.

20 July 2026

Frederic Dodard, CFA, FRM

Head of Portfolio Management, ISG, EMEA

Amy Le, CFA

Investment Strategist

In 2026, gold volatility broke all records, driven by rapidly changing Federal Reserve rate cut expectations, surging bond yields from events like Kevin Warsh’s Fed Chair nomination and Middle East turmoil, a strengthening US dollar, and aggressive profit-taking as gold soared from $5,000 to $5,500 per ounce.

Stop-loss triggers further amplified these moves, making gold’s price swings both swift and unpredictable. Despite this turbulence, gold prices were still up 49.4% in Q1 2026 from Q1 2025. Gold’s share of the Global Market Portfolio (GMP) rose to 6.1% in Q1 2026, up from 1.2% in 2000 and above the peaks seen in 2011–12 during a period of large-scale central bank intervention.

Gold’s safe haven status weakened in early 2026

In 2025, gold demonstrated remarkable resilience as a safe haven, even as traditional assets like US Treasury bonds faltered under the weight of deficit concerns and persistent inflation. Yet, beneath this impressive rally lay hidden vulnerabilities: as structural demand diminished and risk aversion intensified, particularly in response to the Iran conflict, gold became increasingly sensitive to rising real yields. The very forces that propelled gold higher could quickly reverse course, exposing it to steep declines. This fragility was laid bare when gold plummeted 12% following the eruption of the Iran conflict, underscoring that such setbacks during geopolitical turmoil are not unusual, especially when real yields rise and holding gold becomes less attractive.

Building on these vulnerabilities, changing gold demand dynamics further intensified selling pressure. The once-reliable relationship between gold prices and real yields has eroded, as central banks and Chinese investors stepped in as major buyers and momentum-driven trading pushed gold higher regardless of its fundamentals. However, these crucial supports can come and go, as we saw in Q1 2026, when central banks sold gold either to defend their currencies (Turkey, Indonesia) or to finance war efforts (likely Russia and Iran). Meanwhile, demand in both China and Western markets became more speculative, altering gold's traditional safe-haven characteristics. This evolution, combined with prevailing risk-off sentiment, accelerated the decline in gold prices at the end of Q1, while the risk-on sentiment prevailing in Q2 did not benefit gold, as investors turned more bullish on equities.

The consequence has been a sharp reversal in gold's momentum and a very disappointing performance in 2026 so far. Still, this does not mean gold has lost its safe-haven role. Rather, it suggests that this role has become more conditional. Gold can still benefit from geopolitical stress, but only when that support is not overwhelmed by rising real yields, weaker marginal demand, and a reversal in speculative positioning.

Nonetheless, the investment case for gold has not disappeared. Central banks may be less persistent buyers in the short run, but their broader desire to diversify strategic reserves continues to support gold's long-term strategic role.

Asia powers a surge in bar and coin demand

Bar and coin investment in Q1 was exceptionally strong, nearly matching the Q2 2013 record, with Asia leading and demand value hitting an all-time high of USD 74 billion. Most purchases occurred in January, but buying continued throughout the quarter as some investors capitalized on price dips.

China saw record bar and coin demand at 207 tons, fueled by high prices, trade and geopolitical risks, and VAT reforms that shifted investment from jewelry. Demand is likely to remain high, supported by expectations for lower rates and ongoing global uncertainty, with insurers potentially increasing gold holdings.

In India, bar and coin investment jumped more than 30% year-on-year to 62 tons, the strongest first quarter since 2013. This growth was driven by rising gold prices and a shift from jewelry to lower-margin products, with similar gains in ETFs and digital gold. Future demand will largely depend on gold prices and broader economic factors.

Robust ETF demand

Global gold ETFs extended their powerful run, drawing another 62 tons in Q1 and underscoring resilient investor demand despite softer momentum. Beneath this headline strength, however, regional flows diverged sharply, with Asia’s gains more than offsetting weakness in North America and Europe.

This divergence was most evident in Asia, which stood out as the driving force, delivering unwavering monthly growth and adding a powerful 84 tons, fueled predominantly by China’s strategic safe-haven investments amid volatile equities and currency softness. Indian and Japanese investors also added to regional demand. North America inflows turned negative as a stronger dollar and rising rates weighed on flows. Europe posted a second consecutive quarterly decline, while Australia-led other region’s flows added 2 tons across other regions.

Gold ETP inflows have surged on haven demand

Inflows into gold ETPs have significantly accelerated, with total inflows reaching 322 tons as of end-May 2025, representing approximately 10% of total global holdings (Figure 5). This increase has been primarily driven by a 10% rise in US holdings and a 73% surge in Chinese ETF holdings.

Historically, ETF holdings have been influenced mainly by changes in interest rates, as lower rates have enhanced the appeal of non-yielding gold as a risk-free asset. We anticipate that gold’s haven and hedging benefits will continue to drive additional ETF demand beyond the traditional influence of falling real yields.

Gold volatility tends to revert to normal quickly

While Middle East conflict caused trading disruptions, higher volatility affected not only gold but also equities and bonds. Some investors sold gold for quick cash, yet it quickly recovered and continued its strategic role. Historically, gold’s volatility returns to normal levels—annualized rates between 10% and 18%—with spikes typically fading in about six weeks, similar to equities (Source: World Gold Council, Juan Carlos Artigas, Ray Jia, Taylor Burnette, “You asked, we answered: Has gold's performance structurally changed?,” April 16, 2026). Prolonged periods of high volatility are uncommon, and markets usually stabilize rapidly.

This pattern was evident in March 2020, when the COVID‑19 pandemic affected global markets and triggered widespread selloffs. Trading volumes in gold surged, underscoring its role as a source of deep liquidity during episodes of significant financial stress.

Brief liquidity shocks led to wider bid-ask spreads, but these quickly narrowed again. Gold’s spreads stayed within usual ranges, with disruptions short-lived and liquidity expected to return to regular levels soon.

Gold continues to act as a diversifier

Gold remains an indispensable strategic asset for investors, holding its safe-haven role even amid wild volatility spikes. While inflation shocks synchronize bonds and equities, gold’s negative correlation persists, especially during geopolitical and oil-driven inflation risks. Within diversified portfolios, gold reliably reduces risk: even if sold for liquidity, it rebounds and outperforms other assets if uncertainty persists, providing stability.

As of March 31, 2026, gold made up 6.1% of the GMP and contributed 25% to total diversification benefits—ranking first among all assets. Its persistently low correlation with other classes makes it unmatched for portfolio diversification.

As uncertainties persist, gold’s gleam in the global investment landscape appears far from fading.

Disclosure

www.statestreet.com/im

Marketing Communication

Important Risk Discussion

State Street Global Advisors Worldwide Entities

The views expressed in this material are the views of Frederic Dodard and Amy Le through the period ended 30 June 2026 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSIM expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSIM in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyondSSIM’s control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

All information is from SSIM unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

Investing in commodities entail significant risk and is not appropriate for all investors. Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

Investing in REITs involves certain distinct risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. REITs are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs, especially mortgage REITs, are also subject to interest rate risk (i.e., as interest rates rise, the value of the REIT may decline).

There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.

The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable regional regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Investing involves risk including the risk of loss of principal.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSIM’s express written consent.

The performance data quoted represents past performance. Past performance does not guarantee future results. Investing involves risk including the risk of loss of principal.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

Exp. Date: 31/07/2027

More on Global Market Portfolio

View all insights