Should you invest in gold? Absa | Corporate and Investment Banking > Insights and Events > Should you invest in gold? Michael Mgwaba Head of Exchange Traded Products at Absa CIB SHARE Does gold warrant a place in a diversified investment portfolio? Michael Mgwaba, Head of Exchange Traded Products at Absa CIB, ran the numbers to find a definitive answer to the age-old debate. Does gold warrant an allocation in a diversified portfolio? The question has no simple or universally agreed-upon answer, and the debate is complicated by the contrasting opinions published by media outlets and investment firms. Views diverge significantly, even among highly respected investors. Bridgewater investment manager Ray Dalio strongly advocates for gold as strategic hedge, saying: “There is no sensible reason not to own gold”; while Berkshire Hathaway chairperson Warrant Buffett has historically been sceptical of its investment value. These differing perspectives highlight the importance of context, investment objectives and risk appetite when considering gold’s place in a portfolio. To address whether gold warrants a place in a diversified portfolio, we deliberately moved beyond theoretical drivers of gold performance, such as inflation or global risk sentiments, and focused on practical and investor-relevant comparisons, specifically: The difference between investing in physical gold versus gold mining stocks How gold compares with other asset classes in terms of performance and volatility The influence of the USD/ZAR exchange rate Gold’s contribution in the context of a South African multi-asset portfolio construction This approach provides more grounded view of gold’s real-world impact on a portfolio outcome. Physical Gold vs Mining Stocks Gold exposure in the South African market can be accessed through various instruments, including gold mining stocks, physically backed ETFs (such as NewGold), bullion coins (like Krugerrand), gold futures, and other derivatives. While mining equities represent an indirect approach and are still the most common method, physically backed ETFs are considered a more direct and cost-efficient method. The suitability of each option depends on the investor’s strategy, whether the intent is strategic asset allocation, tactical position, or income generation. We evaluated the performance of gold mining stocks relative to physical gold, using London Bullion Market Association (LBMA) gold prices as the reference. For further insight, we compared gold price performance with the JSE Gold Mining Index Total return, covering the period from 31 July 2007 to 26 May 2025 (approximately 215 months). We found that gold outperformed gold mining stocks in cumulative returns over the period, making it an especially attractive option for long-term investors. Asset Class Performance We then compared gold’s performance to local and global asset classes commonly used in diversified South African portfolios. Our goal was to assess whether gold could complement or potentially substitute other core holdings. The market benchmark indices were used to represent the performance of each asset. The data used covered the period from 31 December 2003 to 26 May 2025. The results of our analysis indicated that, on a cumulative return basis, gold has consistently delivered positive performance. Over the long term it has outperformed all other asset included in this analysis, as shown in the graph. This trend may be particularly appealing to a long-term investor who is seeking a stable and consistent return. It reinforces the case for giving gold serious consideration in portfolio construction. However, while these findings are compelling, they are not conclusive in isolation. Foreign Exchange vs Gold Price The value of gold as an asset class reflects both its underlying performance and the influence of the USD/ZAR exchange rate. Our analysis aimed to quantify the extent to which exchange rate movement contributed to the rand value of gold. Our analysis revealed that, from 31 December 2003 to 26 May 2025, gold tended to outperform the USD/ZAR exchange rate. However, the exchange rate itself had little influence on the asset valuation. SA Multi-Asset Portfolio Formulating a South African strategic asset allocation involves setting long-term portfolio weights across major asset classes, tailored to South African market dynamics, macroeconomic conditions and investor objectives. The building blocks of the general portfolio include cash (STEFI 3 Month Index), South African equities (FTSE JSE All Share Index TR Value), international equities (MSCI All Country World Index TR Gross), property (FTSE/JSE SA Listed Properties TR Index, SA Bonds (FTSE/JSE ALBI TR Index), international bonds (Bloomberg Global Aggregate Bonds TR Index) and Alternative Assets (gold). We added allocations of 5% and 10% to gold in our hypothetical portfolio, with our data points covering the period from 31 December 2003 to 30 April 2025. We used 36-month performance, as it aligns with how asset allocators assess consistency and strategic effectiveness. Our analysis of excess rolling 36-monthly returns shows that, in most instances, a South African high equity multi-asset portfolio with a 5% or 10% allocation to gold delivers stronger performance compared to a portfolio with no gold exposure. We considered the risk-return profiles of South African multi-assets with and without gold allocation, across varying equity exposure aligned with high-, medium- and low-risk appetites. The findings indicated that the inclusion of gold enhanced overall portfolio performance. Gold’s Place In A Multi-Asset Portfolio In conclusion, our analysis strongly supports the inclusion of gold in a South African multi-asset portfolio. Across varying levels of equity exposure, reflecting different investor risk profiles, the addition of a 5% to 10% gold allocation consistently improves portfolio performance, particularly when assessed over rolling 36-monthly periods. This performance uplift is driven by gold’s role as a diversifier, inflation hedge and safe-haven asset – especially in the local context marked by rand volatility, inflation risk and periodic equity market stress. Given the consistency of these results, we believe that all investors, regardless of risk appetite, should consider a strategic allocation to gold as part of a well-balanced portfolio. Michael MgwabaHead of Exchange Traded Products at Absa CIB https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles RISK MANAGEMENT Africa’s financial markets stride forward with reforms, as capital dabbles in emerging markets Rocky trade relations and troubled economies have been plaguing financial markets worldwide, but Africa is positioning itself for success. Absa's Jeff Gable, Chief Economist, and Anthony Kirui, Head of Global Markets for Africa Regions, explore how African countries are laying the foundation for long-term structural transformation, even in the face of global adversity. 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