Ten months into 2025 and there’s plenty of clarity regarding which assets are this year’s stars. Gold is atop the list. Using the SPDR Gold Shares (GLD), the largest exchange traded fund backed by physical holdings of the yellow metal, as the bogey, the commodity is on a scintillating run.
Put it this way: one could add up the year-to-date returns of the S&P 500 and the Bloomberg US Aggregate Bond Index, proceed to double that sum and still arrive at a number that’s still significantly less than the nearly 53% returned by GLD as of Oct. 30. Even international stocks, one of this year’s biggest redemption stories, are trailing GLD by wide margins.
Indeed, investors have been rewarded by gold this and many of the catalysts facilitating the rally, including the weaker dollar, aren’t expected to evaporate anytime soon. That’s good news for bullion backers, but the extension of the gold bull market – assuming that’s what plays out – is a reminder that advisors need to be selective about how they access the commodity with client capital.
Don’t Dilute Gold’s Benefits
There’s no shortage of multi-asset commodity funds, including ETFs, on the market today and while those products offer holdings-level diversification, they can also water down some of the perks associated with gold. After all, gold rising doesn’t mean energy or soft commodities are guaranteed to participate. Point is gold should be a diversification and capital appreciation tool and those benefits can wane when mixed with other alternative investments, particularly those from the commodities complex.
“US stock/bond correlations weakened a bit in 3Q, they are still around 27-year highs,” notes State Street Investment Management. “The positive US stock/bond relationship since the inflation spike of 2021-2022 enhances the case for adding alternative investments. ”
One of gold’s primary benefits is that it has long-running, low correlations to bonds and equities, but that diversification is best tapped independently, say with a product like GLD or another comparable ETF. The reason is that gold’s diversification/correlation-reducing properties differ from those of other alternative assets.
“Unlike other commodities, liquid alternatives, and currencies, gold’s demand is relatively price inelastic and spans four distinct sectors: jewelry, industrial use, investments, and central bank reserves,” adds State Street. “Each sector is driven by different economic and behavioral factors, creating a dynamic interplay that supports both cyclical and counter-cyclical consumption. This broad and diverse demand base has been a key source of gold’s low historical correlation, distinguishing it from traditional financial assets. ”
Focus on Gold Purity
When shopping for gold exposure, a lesson from the diamond world is worth remembering. Focus on clarity and sharpness. Multi-commodity funds, while useful in some cases, lack clarity and the “karats” investors need to wring adequate benefit from gold ownership.
“This can leave a portfolio underexposed to gold and some of its beneficial investment characteristics. Practically speaking, gaining gold exposure via a broad commodity index may offer investors access to some of gold’s diversifying and inflation-fighting benefits,” concludes State Street. “But the relatively low exposure to gold may leave other potential benefits untapped—especially since commodity indexes are usually driven by energy weightings and tilted toward pro-cyclical environments. Additionally, when we compare gold with major broad commodity indexes, we see that historically, gold has outperformed with reduced downside. ”
Bottom line: If you’re going for gold, go for gold. Don’t damp it down with other commodities.
