Gold—Not Just a commodity

Gold is often part of the broad commodity complex: as a component of a commodity index, a holding in an ETF, or a future trading on a commodity exchange. While gold shares some similarities with commodities, there are several important differences:

1.       gold is traditionally seen as a safe-haven asset

2.       gold is both an investment and a consumer good

3.       the supply of gold is balanced, deep and broad

4.       gold does not degrade over time, unlike most traditional commodities.


These attributes set gold apart from the commodity complex. And our research suggests that a distinct allocation to gold could enhance the performance of portfolios with passive commodity exposures.


Recently, developments in the performance and liquidity of gold have led two major commodity indices (S&P GSCI and Bloomberg Commodity Indices) to increase their weighting of gold for a second year in a row. In 2020, gold had the largest individual commodity weight increase in the S&P GSCI Index and will have its highest weight ever in the Bloomberg Commodity Index. Yet, our analysis suggests that allocations to gold in these commodity indices remain below their optimal weight.


Perceptions of gold have changed substantially over the past two decades, reflecting increased wealth in the East and a growing worldwide appreciation of gold’s role within an institutional investment portfolio. 

Gold’s unique attributes as a scarce, highly liquid, and un-correlated asset demonstrate that it can act as a diversifier over the long term. Gold’s position as an investment and a luxury good has allowed it to deliver average returns of nearly 11% over the past 50 years, comparable to equities and more than bonds and commodities.

Gold’s traditional role as a safe-haven asset means it comes into its own during times of high risk. But gold’s dual appeal as an investment and a consumer good means it can generate positive returns in good times too. This dynamic is likely to continue, reflecting ongoing political and economic uncertainty, persistently low interest rates and economic concerns surrounding equity and bond markets.