Gold has been called many things—an inflation hedge, a store of value, a safe-haven. But sometimes gold can act like a risk asset, and this year it has captured a fair share of speculative investor interest. For our part, we do not look at gold as a static hedge against inflation (it has been a resilient, albeit imperfect, inflationary hedge through various regimes), a permanently trustworthy store of value, or as a reliable safe haven. In our view, gold is more of a chameleon, adjusting its color to the shifting light of the global economy, sovereign trajectories, and market cycles.
That adaptability has been on full display in 2025. After the spot price for gold rose more than 50% year to date through October, and with gold-related equities up roughly 130% in the same period, the question of whether gold is a countercyclical hedge invariably comes into play. Notably, gold recently gave back some of its outsize gains, including a sizable six percentage point decline on October 21, the largest single-day drop for the precious metal in over a decade. Through early November, spot prices pulled back about 10%, and gold miners roughly twice that amount. Though gold and related equities may retrace this loss, investors may understandably feel wary of the volatility. For that reason, we think some perspective can be helpful.
Gold Has Held Its Own Across Inflation Regimes
Data Source: Bloomberg, FactSet
Data as of September 30, 2025.
Note: Past performance does not guarantee future results.
Understanding the Recent Color Shifts in Gold
We see recent weakness as part of gold’s natural pattern of adaptation. Its rally began when real interest rates—nominal rates minus inflation—started to drift lower as the Federal Reserve (Fed) pivoted toward a more neutral posture in mid 2024. As real rates fell and the U.S. dollar softened, that created a tailwind for precious metals, including gold.
Now, after a powerful run, we see a period of consolidation as both natural and healthy. Gold remains a high-volatility asset—its annualized volatility, as measured by standard deviation, hovers around 30%, notably higher than that of U.S. equities. But this characteristic is simply part of its makeup: Volatility is frequently the price of liquidity and diversification.
Gold Has Had Low Performance Correlation with Other Real Asset Types
Data Source: FactSet
Data as of September 30, 2025.
Note: Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Gold’s true value, in our view, lies in its counter-cyclicality. While many real assets—such as real estate, infrastructure, and natural resource equities—tend to thrive when the economy is expanding, gold often performs best when the economic narrative darkens.
A Structural Shift from Central Banks
A key layer of support for gold and related equities has come from the sovereign sector. Central banks—notably in China and Russia—have become consistent net buyers of gold, adding to reserves at a pace not seen in decades. The motivation here is clear: Faced with a potentially structural decline of the U.S. dollar and U.S. Treasuries, and a broad-based desire to insulate reserve portfolios from geopolitical or sanctions-related risk, central banks are diversifying their reserves.
In our view, this structural shift helps explain why gold has partly decoupled from its traditional drivers. The metal is currently acting less like a commodity and more like a shadow currency—one increasingly held by both institutions and sovereigns seeking independence from monetary regimes.
How We Use Gold
For us, gold serves as a tactical diversifier rather than a permanent allocation. Overall, we consider it a counterweight when confidence in policy, fiat currency, or growth begins to waver. All of these have been factors in play this year, and under these conditions, gold can provide a small but potent source of balance.
We pay close attention to several key indicators to help guide positioning. Chief among these are:
- The trade-weighted, inflation-adjusted U.S. dollar, which reflects pressure on global currencies
- Yields on 5-year Treasury Inflation Protected Securities (TIPS), which we take as a proxy for real rates and the “cost of money”
- Forward price-to-earnings (P/E) ratios for gold-mining equities
These inputs feed into a structured valuation framework that enables us to assess when gold is cheap or rich relative to history. When real rates fall and valuations look reasonable, we may consider adding to our gold-related position. But when our framework tells us that gold is becoming relatively rich and optimism could be getting stretched, we consider trimming or stepping aside.
This rules-based approach helps us stay disciplined through the emotional cycles that often surround gold. When we decide to shift, it is not about guessing the next price move; it is about ensuring that gold plays a designated role within a broader portfolio.
Watching the Cycle for Gold Miners
With respect to gold-related equities, we pay as much attention to corporate behavior as to commodity prices. The mining industry has a long memory of boom-bust cycles. Historically, miners have thrived when they are lean and disciplined, but may begin to overspend as optimism peaks. This is a pattern that we see repeating every decade or so.
Today, we see companies in a healthy part of that cycle: margins are strong, balance sheets are sound, and capital budgets are generally restrained. But we remain aware that these factors can change quickly. Watching the CapEx cycle gives us an early signal of when enthusiasm is beginning to erode discipline—and when it may be wise to take risk off the table.
Despite Record High Gold Prices, CapEx Growth is Moving at a Reasonable Pace
Data Source: Bloomberg, LP
Data as of November 5, 2025.
What We Are Watching Now
For investors pleased by gold’s performance but uneasy as a result of its pronounced volatility, we would frame our outlook in three points:
- Volatility is not the same as vulnerability. Gold’s pullbacks and advances are a function of its nature—it adapts, but generally does not break.
- Monetary conditions matter most. The direction of real rates, liquidity conditions, and sovereign interest will continue to be the most important long-term guide to gold’s performance.
- Discipline drives results. Trimming into strength and rebalancing after rallies has served us well over time as a practical, tactical approach to accessing the potential of the asset’s cyclical character without assuming undue risk.
DISCLOSURES
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