Why Gold Shines When Stocks and Bonds Struggle

Gold may not generate income or fuel industry, but that’s exactly why it belongs in a portfolio. According to DE Shaw, an allocation of up to 9% makes sense — because gold doesn’t zig when stocks and bonds zag.

As September opens with financial turbulence, gold is setting records while bond yields rise in the U.S., U.K., and France. DE Shaw labels gold an “NPSOV” — a non-productive store of value — like bitcoin, diamonds, fine wine, or art. That status makes valuation tricky: gold’s worth is based less on output and more on collective belief.

Still, history offers a guide. Since 1975, gold has typically represented between 1.8% and 7.3% of developed market liquid wealth, generally rising in step with global wealth, which itself has grown faster than GDP. At the same time, annual gold supply has expanded about 1.6%, though central bank stockpiling can offset that.

DE Shaw projects modest returns — about 0.5% above inflation-adjusted risk-free rates, with volatility near 15%. But the real case for gold isn’t return; it’s diversification. Over long periods, gold’s correlations with stocks, bonds, and inflation are loose, meaning it can smooth out volatility when traditional assets move together.

Here’s the key:

• When stocks and bonds move in opposite directions, gold’s optimal weight is ~6.5%.
• When stocks and bonds move together, gold’s allocation rises to ~9%.

With today’s correlations hovering near zero, gold’s role sits squarely between those ranges — offering insurance against the next bout of market stress.