28-07-2025
Can gold be classified as an 'alternative asset' within an investor's portfolio?
In recent years, institutional investors have increasingly turned to alternative assets in pursuit of higher returns, broader diversification, and insulation from traditional market cycles. Yet, these benefits often come with trade-offs — namely, limited liquidity, delayed valuations, and vulnerability to economic shocks that may not be immediately priced in.
Against this backdrop, a recent World Gold Council report suggests a rethinking of gold's role—not just as a traditional safe haven, but as a strategic component within the evolving landscape of alternative investing.
While gold is not always classified as an 'alternative asset,' it possesses characteristics that make it uniquely suited to complement such portfolios. It is highly liquid, exhibits low correlation with most asset classes, and has a proven track record of resilience during periods of systemic stress. These attributes position gold as a natural counterbalance to the illiquidity and opacity that often characterise private market investments.
To quantify gold's value in a diversified portfolio, the report employs a robust Monte Carlo simulation using 20 years of historical data. The findings are clear: portfolios that include a 5–8 per cent allocation to gold consistently outperform those without it in terms of risk-adjusted returns. Gold reduces volatility, cushions drawdowns, and enhances overall portfolio efficiency. For example, in a 20-year simulation, portfolios with gold experienced a maximum drawdown of –38.8 per cent, compared to –43.2 per cent without it. Even in shorter timeframes, gold's inclusion improved Sharpe ratios and reduced downside risk.
'To investors, public and private markets exist along a continuum of liquidity, returns, and volatility. The difference is one of timing and access. Gold exists in this continuum, not because it mimics public or private assets, but because its attributes bridge across both,' said Marissa Salim, Senior Research Lead, APAC at the World Gold Council.
The analysis goes further by stress-testing portfolios under four macroeconomic shock scenarios: rate hikes, inflation spikes, equity crashes, and credit spread widening. In every case, gold helped reduce portfolio losses by 50 to 90 basis points. These results underscore gold's role as a reliable shock absorber—especially when both traditional and alternative assets come under simultaneous pressure.
But gold's value extends beyond numbers. The report introduces the concept of a 'portfolio continuum,' where public and private markets are not seen as binary choices but as points along a spectrum of liquidity, returns, and volatility. In this continuum, gold serves as a bridge. It trades with the immediacy of public markets yet offers the defensive stability often sought in private strategies. This duality makes gold particularly valuable in today's environment, where private market liquidity is tightening and exit timelines are lengthening.
Indeed, the report highlights a notable slowdown in private market deal activity and IPOs, which has created a bottleneck in capital redistribution. Innovations like GP-led secondaries and continuation funds are emerging to address these challenges, but they do not eliminate the underlying issue: capital remains locked for longer, and access to cash is less predictable. Gold, by contrast, provides immediate liquidity and flexibility—qualities that are increasingly scarce in private markets.
In essence, gold is not a replacement for private credit or equity, but a strategic complement. It addresses the blind spots of alternative investments—liquidity constraints, valuation lags, and delayed responses to market stress. As portfolios become more complex and span a wider range of asset classes, gold offers a quiet but powerful form of stability. It is the connective tissue in a portfolio that must perform across cycles, across asset types, and across market regimes.
