Rethinking the 60/40 portfolio: The case for gold

Our research finds that over the past two decades adding a modest allocation to gold has improved risk-adjusted returns while reducing portfolio volatility and drawdowns in traditional 60/40 portfolios.¹ And while past performance is not indicative of future results, the case for including gold may be strengthening as the post-pandemic environment challenges assumptions that have long supported stock/bond diversification.

Here, we analyze the results of adding the SPDR® Gold Shares (GLD®), the largest gold-backed ETF globally², to 60/40 portfolios.

The foundations of the 60/40 portfolio are being challenged

The traditional equity/bond portfolio has come under increasing pressure in the post-pandemic regime. 2022 is the clearest example, when both stocks and bonds entered bear markets, falling sharply in tandem. Indeed, it was the worst annual performance for the 60/40 portfolio in decades versus a flat year for gold markets.³

Since then, there have been several periods in which the traditional stock/bond portfolio has provided less diversification benefit than investors historically expected: September-October 2023; April 2024; October-December 2024; March 2025; March 2026; and June 2026.⁴

Investors questioning the resilience of a 60/40 framework may be concerned by several post-Covid macro shifts that are potentially structural:

• Record government debt burdens have pushed worldwide sovereign debt to approximately $108 trillion, or 91.5% of world GDP, potentially constraining central bank policy and putting upward pressure on bond yields.⁵
• Persistent inflation pressures continue to linger across developed and emerging economies, possibly eroding the real return potential of fixed income.
• Higher-for-longer interest rates have increased expectations for neutral policy rates and term premia, while continued government bond issuance has added pressure to duration-sensitive assets.
• Record central bank gold purchases reflect a broader trend toward reserve diversification and de-dollarization among emerging market economies.
• Rising stock-bond correlations have challenged the diversification relationship investors have long relied on, while gold's inverse relationship with the US dollar has remained intact (Figure 1).

If bonds become less effective diversifiers during periods of market stress, should investors consider complementing a traditional 60/40 allocation with gold?

The US dollar/gold inverse relationship has long supported gold as a liquid alternative-fiat asset to hedge FX devaluation risks. But the post-Covid spike in stock/bond correlations enhances the case for gold as a diversifier in portfolio construction (Figure 1).

Gold's expanding role in a changing market regime

The post-COVID market regime has increased investor focus on both diversification and currency debasement risks, two factors that have historically supported demand for gold. At the same time, geopolitical fragmentation and political uncertainty have contributed to a more supportive backdrop for gold.

From 2020-2025, gold prices increased nearly 3x against the US dollar (USD). However, those price gains were not just at the expense of the greenback. Over the same six-year window, gold was up nearly 3x in EUR and GBP terms and 4x in JPY terms.⁶

The global phenomenon of rising term premia, debt monetization, and higher neutral rates suggests that investors may need to look beyond bonds for diversification.

Investors are increasingly demanding compensation for duration risk, and bond yields may remain structurally higher than in the pre-pandemic era. In July 2026, the US 30Y Treasury yield hovered north of 5% for its longest stretch since 2007.⁷ In this environment, gold's potential value as a low-correlation asset becomes more apparent to help preserve and grow capital and provide diversification to a traditional 60/40 portfolio.

Central bank demand for gold provides another indication of this shift in thinking. Between 2022 and 2024, central banks purchased more than 1,000 tonnes of gold annually for three consecutive years. Both in absolute terms and relative to annual mine supply, this represents the strongest period of official-sector purchasing in the post-1971/post-Nixon shock era of free-floating currencies.

Although purchases moderated in 2025, annual buying remained among the strongest levels observed in more than five decades, while second-quarter 2026 demand reaccelerated relative to 2025.

Even with some moderation from the 2022-2024 peak, official-sector purchases remain roughly double the pace observed during the post-Global Financial Crisis (GFC) to pandemic period (2010-2021).⁸

Can gold improve 60/40 portfolio outcomes?

To evaluate gold's impact on a traditional 60/40 portfolio, we modeled a series of hypothetical portfolios incorporating GLD allocations of 0%, 2%, 5%, and 10%, seeking to answer three questions:

• Does adding a strategic allocation to gold improve portfolio outcomes?
• How much gold appears most beneficial within a 0%-10% allocation range?
• Does the source of funding affect the balance between long-term growth and downside protection?

The equity allocation is represented by the S&P 500®, while the bond allocation is represented by the Bloomberg US Aggregate Bond Index. Each portfolio begins with a starting value of $1,000,000 and is rebalanced annually to its target allocation. We use monthly data from December 2004 through December 2025, following the launch of GLD in November 2004.

We evaluated two methods of funding the gold allocation.

Overlay 1: Even Funding. GLD is added through equal percentage-point reductions to the equity and bond sleeves. The resulting stock/bond/GLD target allocations are 60%/40%/0%, 59%/39%/2%, 57.5%/37.5%/5%, and 55%/35%/10%.

Overlay 2: Bond Only (Agg-only). GLD is added entirely from a reduction in the bond allocation. The corresponding target allocations are 60%/40%/0%, 60%/38%/2%, 60%/35%/5%, and 60%/30%/10%.

The Agg-only approach tests an alternative implementation in which a portion of the traditional defensive sleeve is reallocated to gold, reflecting gold’s potential role as a portfolio diversifier and left-tail hedge while preserving the portfolio’s 60% equity target.

The equity and bond inputs are based on total-return index data, while GLD is modeled using monthly price returns. Monthly logarithmic returns are used to update portfolio values. The core performance metrics are compound annual growth rate (CAGR), annualized volatility, Sharpe ratio, maximum drawdown, and ending portfolio value. The analysis also includes a stress-period drawdown table covering major historical risk-off episodes, including the GFC, the 2011 US credit downgrade, the 2018 US-Sino trade war, COVID-19, and the 2022 Russia/inflation shock.

Stress-period drawdowns are calculated using month-end portfolio values, consistent with the monthly back test. Because this can understate fast intra-month shocks that partially recover before month-end, we also include a supplemental daily event study for Brexit 2016 and the 2025 Tariff/Liberation Day shock.

Adding gold improved returns while strengthening portfolio resilience

Our results suggest that adding gold improved portfolio outcomes across several dimensions. Portfolios with GLD generally produced higher returns, stronger risk-adjusted performance, and shallower drawdowns than a traditional 60/40 allocation. The magnitude of these benefits varied depending on how the gold allocation was funded.

1. Adding GLD increased total wealth under both funding methods

Increasing the GLD allocation improved CAGR and ending wealth under both funding methods (Figure 4). Under Even Funding, CAGR increased from 8.05% with 0% GLD to 8.32% with 5% GLD and 8.58% with 10% GLD, an approximate 53 basis point improvement over the full sample.⁹ On a $1,000,000 initial investment, ending wealth increased from approximately $5.09 million with no GLD to $5.36 million with 5% GLD and $5.63 million with 10% GLD. At 10%, this represented approximately $545,276 (+10.7%) in additional ending wealth.¹⁰

Under Agg-only Funding, CAGR increased from 8.05% with 0% GLD to 8.50% with 5% GLD and 8.95% with 10% GLD, an approximate 90-basis-point improvement over the full sample.¹¹ On a $1,000,000 initial investment, ending wealth increased from approximately $5.09 million with no GLD to $5.55 million with 5% GLD and $6.04 million with 10% GLD.¹² At 10%, this represented approximately $957,740 (+18.8%) in additional ending wealth.¹³ At the 10% allocation, Agg-only Funding generated approximately $412,463 more ending wealth than Even Funding, reflecting the preservation of the 60% equity target while funding GLD entirely from the bond sleeve.¹⁴

Figure 5 illustrates the hypothetical growth of a $1,000,000 portfolio under Even Funding. As the GLD allocation increased, the portfolio exhibited progressively stronger long-term wealth accumulation.¹⁵ Although the Agg-only Funding generated greater ending wealth, consistent with gold’s stronger performance relative to bonds over the full sample and the preservation of the 60% equity target,¹⁶ Even Funding, as the more balanced implementation, produced a more defensive profile.

2. The relationship between return and volatility depended on the funding method

As shown in Figure 4, the return improvement with a GLD overlay under Even Funding did not come at the expense of higher annualized volatility. Realized volatility declined progressively from 9.34% with 0% GLD to 9.08% with 5% GLD and 8.90% with 10% GLD.¹⁷

This suggests GLD acted less as an incremental risk asset and more as a diversifying return stream that improved portfolio efficiency. As a relatively lower correlation asset to traditional stocks and bonds, gold in these portfolios served as a source of: A. capital appreciation; B. diversifier; and C. left-tail hedge (see next section).

The volatility outcome differed under Agg-only Funding. Annualized volatility increased modestly from 9.34% with 0% GLD to 9.40% with 5% GLD and 9.53% with 10% GLD, a rise of only 19 basis points.¹⁸ Despite this increase, the approach generated the strongest long-term growth while maintaining broadly comparable risk-adjusted returns, as reflected by progressively higher Sharpe ratios.

3. Risk-adjusted returns improved and maximum drawdowns declined under both funding methods

Risk-adjusted returns also improved progressively, as shown in Figure 4. Under Even Funding, the Sharpe ratio increased from 0.64 with 0% GLD to 0.69 with 5% GLD and 0.73 with 10% GLD.¹⁹ Under Agg-only Funding, the Sharpe ratio increased from 0.64 with 0% GLD to 0.68 with 5% GLD and 0.72 with 10% GLD.²⁰

At 10% GLD, Sharpe ratios remained broadly comparable at 0.73 under Even Funding and 0.72 under Agg-only Funding,²¹ indicating that the latter’s higher return largely offset its modestly higher volatility on a risk-adjusted basis.

Maximum drawdowns also became progressively shallower, as shown in Figure 4. Under Even Funding, maximum drawdown improved from -30.75% with 0% GLD to -28.92% with 5% GLD and -27.06% with 10% GLD.²² Under Agg-only Funding, maximum drawdown improved from -30.75% with 0% GLD to -30.30% with 5% GLD and -29.85% with 10% GLD.²³

Figure 6 shows that the same defensive pattern generally held across the defined month-end stress windows. GLD implementation was most visibly defensive during persistent drawdown regimes such as the GFC, the 2011 US credit downgrade, COVID-19, and the 2022 Russia/inflation shock. The largest benefit occurred during the GFC, when maximum drawdown improved from -30.8% with no GLD to -28.9% with a 5% GLD allocation and -27.1% with a 10% allocation.²⁴ We focus on Even Funding here because it produced the more pronounced defensive benefit across the historical stress windows.

Figure 7 shows that the supplemental daily event study produced a similar cushion during shorter intra-month shocks. At 10% GLD, maximum drawdown during the 2025 Tariff/Liberation Day shock improved from a 60/40 -10.84% to -9.79% under Even Funding and to -10.78% under Agg-only Funding.²⁵ During Brexit, maximum drawdown improved from -2.88% to -2.17% under Even Funding and to -2.48% under Agg-only Funding.²⁶ These short-window results show that even when month-end data understates the intra-month drawdown, a modest GLD sleeve still helped cushion portfolios during sharp political or policy-driven shocks.²⁷

While Figures 6 and 7 demonstrate how GLD improved portfolio drawdowns, Figure 8 helps explain the underlying driver by comparing gold directly with a traditional 60/40 portfolio during the same historical stress events.

Gold outperformed balanced portfolios during periods of market stress because investors sought liquid alternatives and tail hedges amid heightened macro uncertainty, recession fears, geopolitical turmoil, and financial market volatility.²⁸

While traditional stock/bond portfolios experienced significant drawdowns, gold generally preserved capital and delivered positive returns in most crisis periods, as illustrated in Figure 8: the GFC (+25.0%), US credit downgrade (+8.2%), trade-war uncertainty (+5.1%), and Brexit (+4.9%).²⁹ Digging deeper, we highlight two periods of notable gold outperformance, including one in which gold outperformed despite posting a modest negative return.

During periods of market stress, both bonds and gold have historically provided diversification benefits, but gold has often offered protection when traditional stock/bond relationships became less reliable. During the GFC (October 2007 to March 2009), stocks and high-quality US Treasurys exhibited a strongly negative correlation, generally ranging from approximately -0.3 to -0.6, as investors fled risky assets and sought the safety of government bonds.³⁰

As a result, Treasury prices rose while equities declined by roughly 55% peak-to-trough, allowing bonds to partially offset equity losses in traditional 60/40 portfolios.³¹ Despite the negative correlations, gold went a step further, benefiting from alternative-fiat demand, concerns about financial system stability, and unprecedented monetary stimulus, generating a positive return of 25% while traditional portfolios experienced substantial drawdowns.³²

Also shown in Figure 8, the COVID-19 market shock demonstrated both the strengths and limitations of traditional diversification. For most of the February-March 2020 selloff, stocks and Treasurys maintained their typical negative correlation, helping bonds cushion portfolio losses.³³ However, during the acute liquidity crisis in mid-March, investors sold nearly all asset classes, including Treasurys, to raise cash, causing Treasury yields to rise sharply even as equities continued to fall.³⁴ This temporarily turned stock/bond correlations positive and reduced the effectiveness of bonds as a hedge until aggressive Federal Reserve intervention came into play.³⁵ Throughout this period, gold largely avoided the same degree of market dysfunction, declining only modestly relative to traditional balanced portfolios.³⁶

Together, the GFC and COVID-19 episodes illustrate that while bonds can provide meaningful diversification during recessions and risk-off environments, gold has historically offered an additional layer of crisis diversification, particularly during periods of extreme uncertainty, financial stress, and macroeconomic shocks.³⁷ Today, the asset allocation dynamic is reminiscent of the brief period during COVID-19 when stock/bond correlations shifted from negative to zero or positive before marking a structural shift higher in 2022.³⁸ In such an environment, the diversification benefits of gold can become even more valuable.

The case for a strategic gold allocation to help strengthen portfolio resilience

While the traditional 60/40 portfolio remains a valuable framework, today's market environment may require investors to look beyond traditional stock and bond exposures for diversification.

While past performance is not indicative of future results, our analysis suggests that modest allocations to gold—through either funding approach—have historically improved portfolio outcomes and may help investors build more resilient portfolios in a market environment characterized by higher inflation, elevated debt burdens, and less reliable stock-bond diversification.

Funding gold through proportional reductions to both equities and bonds produced a more defensive profile, improving returns while reducing volatility and mitigating drawdowns during periods of market stress.

Funding gold exclusively from the bond sleeve generated stronger long-term wealth accumulation and a comparable Sharpe ratio, though with somewhat higher volatility and somewhat larger drawdowns during periods of stress.

Together, these findings support viewing gold as a strategic portfolio allocation that complements, rather than replaces, stocks and bonds. Equities remain the portfolio's primary growth engine, while bonds continue to provide income, liquidity, and defensive characteristics. Gold offers a differentiated source of return, diversification, and potential purchasing-power preservation.