April 26, 2025
August 23, 2026
Author: Joao Lages
Why invest in gold when it produces no income, can be volatile, and may lag productive assets for long periods? The serious answer is not that gold always rises in a crisis. It is that gold can play a distinct portfolio role: a liquid, globally recognised asset whose value does not depend on an issuer meeting a contractual payment.
That distinction matters to investors building resilient portfolios. Gold can diversify financial-asset exposure, but it is neither a substitute for cash nor a shortcut to wealth. The relevant questions are how it behaves, which form of exposure an investor actually owns, what risks that structure introduces, and whether the allocation has a defined purpose.
Recent demand illustrates both gold's appeal and its capacity to surprise. The World Gold Council's Gold Demand Trends for the second quarter of 2026, published on 30 July 2026, reported total demand including over-the-counter activity of 1,269 tonnes. First-half demand reached 2,522 tonnes, while the value of demand reached a record US$380 billion. Yet gold-backed exchange-traded funds recorded net outflows of 45 tonnes during the quarter.
This is useful evidence against a simplistic narrative. Strong aggregate demand can coexist with withdrawals from one investor channel because jewellery buyers, central banks, private investors, institutions, and technology users respond to different incentives. Gold is one market, but its demand is not one trade.
The preceding year also showed the scale of official and investment demand. According to the World Gold Council's full-year 2025 review, annual demand including over-the-counter activity exceeded 5,000 tonnes for the first time, central banks purchased 863 tonnes, and gold-backed ETF holdings increased by 801 tonnes. These figures describe a powerful period; they do not establish a permanent rate of demand or guarantee future returns.
A bond is a claim on an issuer and a bank deposit is a claim on a bank. Properly owned physical gold is different: it has no coupon, but it also has no issuer whose default can extinguish the asset. That can make it useful when an investment committee wants a reserve asset outside the credit system, provided custody and title are robust.
The European Central Bank's June 2026 report on the international role of the euro notes that central banks hold gold for diversification and as a hedge against geopolitical risk. Institutional investors should not copy reserve managers mechanically: central banks have different liabilities, horizons, and policy objectives. The observation is valuable because it explains demand from buyers that are not simply chasing short-term returns.
Gold trades across venues and time zones, with the London over-the-counter market providing an important reference. The London Bullion Market Association describes the LBMA Gold Price as an independently administered, electronic and auditable benchmark. The benchmark is set twice each London business day, according to the LBMA guide to precious-metal benchmarks.
Benchmark liquidity does not mean every gold product is equally liquid. A widely traded fund, a vaulted bar, a collectible coin, a mining share, and a token representing a claim on bullion have different spreads, settlement mechanics, and exit risks. Investors should evaluate the instrument, not merely the commodity in its name.
Gold may behave differently from equities and bonds because its return drivers differ. It can respond to real interest rates, currency movements, inflation expectations, geopolitical stress, central-bank activity, investment flows, jewellery demand, mine supply, and recycling. Those relationships change over time, so historical correlation should be treated as a sample rather than a law.
The strongest case for gold is therefore portfolio-specific. An allocation may improve resilience if the existing portfolio is concentrated in assets exposed to similar growth, duration, credit, or currency risks. It may add little if the investor already has effective diversifiers or cannot tolerate gold's opportunity cost and price swings.
Gold does not generate interest, rent, dividends, or operating cash flow. Its return comes from changes in market price after fees, spreads, custody costs, taxes, and currency effects. When real yields are attractive or risk assets compound strongly, holding gold can impose a meaningful opportunity cost.
Nor should investors assume that gold will rise during every equity sell-off or inflationary episode. In a liquidity shock, investors may sell liquid assets to meet obligations. Over shorter periods, exchange rates, positioning, and interest-rate expectations can dominate the long-term thesis.
This limitation is precisely why an investment policy should define gold's job. If the objective is emergency liquidity, cash and high-quality short-duration instruments may be more reliable. If the objective is long-term growth, productive assets generally deserve the central role. Gold is more plausibly a diversifier, reserve allocation, or risk-management component than the engine of a portfolio.
Bars and bullion coins provide direct exposure, but operational details determine whether that exposure is institutionally credible. Investors need to assess dealer spreads, bar standards, storage, insurance, transport, audit rights, legal ownership, and the procedure for sale or delivery. Collectible value should be separated from metal value because numismatic premiums introduce another source of risk.
Allocated custody generally identifies specific metal for the client, while unallocated arrangements are usually claims on a provider rather than ownership of specified bars. Contract terms and insolvency treatment vary by jurisdiction and provider. Legal review is therefore part of asset selection, not administrative clean-up.
Exchange-traded funds and commodities can offer convenient dealing and portfolio reporting. Their legal structures, collateral arrangements, redemption rights, fees, tracking methods, and investor protections differ. A product that follows the gold price economically may not give every holder a right to take delivery of metal.
Allocated or unallocated bullion accounts can be efficient for professional investors, but they require the same scrutiny of title, custody, and counterparty exposure. The label “physically backed” is a starting point for diligence, not its conclusion.
Gold-mining shares are operating companies, not stored metal. Their results depend on ore grades, energy and labour costs, capital allocation, jurisdiction, management, financing, and environmental obligations as well as the gold price. They can amplify a gold move, but company risk can overwhelm the commodity thesis.
Futures and options provide liquid tools for hedging or tactical exposure, yet leverage, margin calls, expiry, basis risk, and roll costs can materially alter outcomes. Structured products add issuer and documentation risk. These instruments can be appropriate for experienced investors with clear controls, but they should not be presented as interchangeable with physical ownership.
There is no universally correct percentage. A pension fund, family office, corporate treasury, and individual investor have different liabilities, liquidity needs, regulatory constraints, currencies, and tolerances for drawdowns. A responsible process starts with objectives and scenarios, not a popular allocation rule.
Investment committees can make the decision more disciplined by documenting:
Portfolio analysis should test gold in the investor's base currency and across multiple market regimes. Nominal returns alone can conceal currency gains or losses, while a favourable backtest can be dominated by a particular starting date. Stress tests, liquidity analysis, and explicit cost assumptions are more informative than a single historical Sharpe ratio.
Gold is one member of a broader opportunity set. Lympid's guide to investing in alternative assets provides useful context for comparing access, liquidity, valuation, and governance across asset types.
Tokenization can represent an interest in vaulted bullion through a digital record, potentially enabling fractional ownership, programmable transfers, and integration with digital investment platforms. Lympid's explanation of how gold tokenization works outlines the basic model. For firms exploring distribution, a commodities tokenization platform can help connect issuance and investor access.
The technology does not eliminate the need for a legally enforceable claim. Due diligence should establish who owns the bullion, where it is held, whether it is allocated, how often reserves are independently verified, how tokens are issued and burned, what redemption costs apply, and what happens if the issuer or custodian fails. Transfer restrictions, investor eligibility, sanctions controls, tax treatment, and applicable securities or commodities rules also depend on the structure and jurisdiction.
Secondary-market functionality should not be confused with assured liquidity. A token may be technically transferable while trading depth remains limited. The credible proposition is better infrastructure around a real asset, not a guarantee that the asset will be easier to sell at a fair price under every condition.
First, identify the economic exposure. Decide whether the mandate calls for metal, a security backed by metal, a corporate equity exposed to gold economics, or a derivative. Each can be sensible, but each solves a different problem.
Second, map the complete ownership and service chain. Review the issuer, custodian, sub-custodian, broker, auditor, benchmark, market maker, and technology provider where relevant. Confirm which party is responsible at each stage and which jurisdiction governs the claim.
Third, calculate total implementation cost. Include purchase and sale spreads, annual management fees, vaulting, insurance, brokerage, foreign exchange, financing, taxes, redemption charges, and market impact. A low headline fee can coexist with expensive entry or exit.
Finally, define monitoring and exit rules before committing capital. Track concentration, tracking error, reserve reporting, counterparty health, legal changes, liquidity, and the continuing fit with portfolio objectives. The aim is not to predict every gold-price move; it is to prevent a strategic allocation from becoming an unmanaged position.
Why invest in gold? Because a carefully structured allocation can provide exposure to a globally traded asset with no issuer credit risk at the physical-asset level and with return drivers distinct from many financial assets. That case is strongest when the investor specifies the role, selects the right ownership structure, prices the full cost, and accepts that diversification benefits can fail when they are needed.
The contrarian point is that gold does not need a heroic forecast to be useful. It needs a disciplined mandate. Investors who distinguish the metal from the wrapper, verify custody and legal rights, and rebalance against stated objectives are better placed to use gold as portfolio infrastructure rather than a speculative story.
If you are considering launching a tokenised investment product, speak with Lympid.
Book a call with us today and get a free assessment.
