This post examines how incorporating gold into a portfolio of US stocks and bonds can improve overall returns as well as lowering overall volatility. We typically use the analyses shown here, in combination with other data points, to guide conversations with clients about including a gold allocation within their Core portfolios.
There are numerous reasons investors incorporate gold into their portfolio, but ours come down to the following key points:
- Gold exhibits very low correlation to stocks and bonds of 0.00 to 0.09 since the 1970s, making it a powerful diversifier to a portfolio primarily made up of those assets1
- Gold is predominantly priced in US dollars across global markets making it a particularly good hedge position for US-based investors2
- Gold’s long-term return measured in US dollars from 1971 (after being de-linked from the dollar) to 2023 is 8% outpacing US inflation and various US Treasuries3
We are also well aware of the arguments against holding gold, but we prefer to focus on what real world data says, not on theoretical criticisms. One of the traits that makes us different from other advisors is our focus on empirical evidence and our willingness to do our own homework.
We’ll explore each of the points in favor of gold in more detail in future posts. For today, we’re going to spend the rest of this article highlighting the historical impact gold has had on a stock and bond portfolio’s returns and risk metrics.
Portfolio Analysis
We used Portfolio Visualizer’s “Backtest Asset Allocation” module to develop the analyses shown in the table below. We’ll look at three scenarios to understand how adding gold affects the return and risk characteristics of a 60/40 portfolio. In each scenario below, the ratio of Stocks to Bonds stays at a consistent 60/40 ratio to each other with Gold representing 0%, 5%, and then 10% of the total portfolio mix.
Table 1: How Gold Impacts a 60/40 Portfolio – Jan 1972 through Aug 2025
| 60% Stocks 40% Bonds 0% Gold | 57% Stocks 38% Bonds 5% Gold | 54% Stocks 36% Bonds 10% Gold | |
| Topline Metrics | |||
| Annual Return (CAGR) | 9.48% | 9.60% | 9.70% |
| Annual Stdev | 10.11% | 9.70% | 9.41% |
| Return/Stdev | 0.93 | 0.99 | 1.03 |
| Max Drawdown | -28.5% | -24.5% | -22.5% |
| Stress Periods | |||
| Dotcom Crash | -18.4% | -16.8% | -15.2% |
| Subprime Crisis | -26.4% | -24.5% | -22.5% |
| COVID Shock | -9.6% | -9.1% | -8.7% |
For educational purposes only. Data and analytics via Portfolio Visualizer run on September 29, 2025. Scenarios developed and summarized by Kangpan & Co. Assumes yearly rebalancing and does not include the impact of fees or taxes. Stocks are represented by “US Stock Market,” Bonds represented by “10-year Treasury,” and Gold represented by “Gold.” Stress Periods: Dotcom Crash Mar 2000 – Oct 2022, Subprime Crisis Nov 2007 – Mar 2009, COVID Shock Jan 2020 – Mar 2020. Past performance is not indicative of future returns. Investing involves risk including the loss of capital.
There are two key takeaways from the chart that we want to highlight for readers:
- Increasing allocations to Gold result in increasing Annual Returns along with decreasing volatility (as measured by the Annual Standard Deviation) thus improving the overall Return/Stdev ratio
- Incorporating Gold makes the portfolio more resistant to shocks and stress, lowering the observed overall Max Drawdown of the portfolio and reducing the losses experienced across numerous Stress Periods
Overall, the data and analysis shows adding gold to a standard portfolio of stocks and bonds tends to increase expected annual returns while decreasing its risk profile.
Implications for Investor Portfolios
We feel the table above is a compelling set of data points to argue in favor of including gold allocations within traditional stock and bond portfolios. When we work with clients who have an interest in diversifying their portfolio with gold, we will also help them:
- Identify the optimal starting allocation based on the rest of their portfolio and their overall risk tolerance
- Determine how to incorporate gold into their portfolio such as utilizing an ETF vs. holding physical gold
- Manage the additional complexity of including more assets within their portfolio such as rebalancing, broader tax-loss harvesting, etc.
Email us if you’d like to discuss anything in more detail or learn more about our services.
email: [email protected]
Disclosures:
This content is for educational purposes only and is not an investment recommendation. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed financial advisor before making any changes to your investments. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.
1. https://www.ssga.com/us/en/intermediary/insights/gold-as-a-strategic-asset-class
2. https://www.cmegroup.com/openmarkets/metals/2025/Gold-and-the-US-Dollar-An-Evolving-Relationship.html
3. https://www.suerf.org/wp-content/uploads/2025/03/SUERF-Policy-Brief-1119_Johan-Palmberg.pdf
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