One Sunday evening, 15 August 1971, United States President Richard Nixon stepped in front of a television camera and announced that the US would no longer exchange dollars for gold. By Monday morning, the world’s monetary order had shifted on its axis. Gold, which had been fixed below $40 per ounce for decades, was suddenly free to find its own price. What followed was the most dramatic decade in metal’s modern history: by January 1980, gold had risen twenty-two-fold. The driver was not scarcity or industrial demand, it was fear, and a collapsing confidence in paper money.
More than 50 years on, the conditions that made gold compelling then have not disappeared. They have simply taken new forms.
Understanding why gold endures as the preferred safe haven requires understanding what it is and what it is not. Gold is not a productive asset. It pays no dividend, generates no earnings, and builds nothing. What it offers instead is something rarer in financial markets than it might appear: the absence of counterparty risk. When you own gold, you do not own a claim on someone else’s promise. You own the object itself. In a world built on promises like government bonds, bank deposits, and derivatives, that distinction carries real weight. Gold is virtually indestructible, has been recognised as a store of value across every major civilisation for 5 000 years, and exists in finite supply. Roughly 220 000 tonnes have been extracted from the earth in all human history, and the industry mines approximately 3 500 tonnes per year. Unlike oil or copper, the abundant supply has never broken the gold price over the long run and this is because supply is not what drives it.
What drives the gold price is investment demand, and investment demand is driven by something more psychological than physical: the collective judgment of investors about the reliability of the financial system and the real return available from holding cash or bonds. The single most powerful correlator to the gold price since the dollar was unpegged from gold has been the real yield on US 10-year Treasury Bonds – that is, the interest rate adjusted for inflation. When real yields are high and rising, the opportunity cost of holding gold is steep, and the metal tends to struggle. When real yields are low, negative, or falling – when holding cash or government bonds effectively costs you money in real terms – gold becomes attractive by comparison. This relationship has held with remarkable consistency since 2003, when the introduction of gold exchange traded funds (ETFs) democratised access to the metal and brought a new wave of investment demand into the market. Before ETFs, exposure to gold required either physical ownership or investment in mining shares, both of which carried friction and complexity that discouraged smaller investors. However, ETFs changed that, and in doing so, cemented investment demand as the true price-setter
There is a second, newer structural tailwind that deserves attention. Central banks, once consistent sellers of gold through the 1990s and early 2000s, have become significant buyers. They have been net purchasers every year since 2010, but the pace of buying accelerated sharply after 2022, when Western governments froze Russia’s foreign exchange reserves in response to the invasion of Ukraine. For central banks in the developing world watching that episode, the lesson was unmistakable: dollar-denominated reserves held in the Western financial system are not unconditionally safe. Gold, held in your own vaults, is. The de-dollarisation impulse this sparked among emerging market central banks represents a durable, multi-year source of demand that did not exist a decade ago.
For the individual investor, the question is less about whether gold is compelling and more about how to hold it and how much. The role gold plays in a portfolio is primarily defensive. It has a low and often negative correlation to equities during periods of genuine market stress, which is precisely when diversification matters most. A portfolio that held no gold through the Global Financial Crisis, the pandemic shock, or the 2022 simultaneous drawdown in both equities and bonds, felt the full force of each of those events. A modest gold allocation absorbed some of that pain. Most portfolio construction frameworks suggest that an allocation of between 5% and 15%, depending on the investor’s risk profile and investment horizon, is sufficient to capture the diversification benefit without meaningfully sacrificing long-term return potential.
How one accesses gold matters too. A gold ETF tracks the metal price directly and is the most straightforward option for most investors, offering liquidity and transparency. Gold mining shares offer leveraged exposure to the metal – when gold rises, well run miners tend to rise further – but they also carry operational risk, management risk, and the volatility of the equity market. They are not a substitute for gold itself in a defensive portfolio context. Physical gold ownership, whether through coins or bars, remains an option but introduces storage and insurance costs that erode returns over time. For most retail investors, a reputable gold ETF is the most practical and cost-effective vehicle.
The broader case for holding gold through the decade ahead rests on the same foundations Nixon inadvertently reinforced in 1971: elevated and hard-to-reduce government debt across the developed world, the political constraints that make raising interest rates genuinely painful, a fracturing post-war multilateral order, and a growing number of sovereign actors actively reducing their reliance on the dollar. None of these conditions resolves quickly. They are the kind of slow moving structural forces that tend to reward patient investors, who have positioned for them in advance rather than after the fact. Gold will not protect against every risk in a portfolio, and it will have years where it lags other assets. But for investors who understand what it is and what it is designed to do, the question is rarely whether to own it. It is how much, and in what form.