Gold has been through some interesting volatility of late, right alongside the impressive 64 percent return we’ve seen in 2025! They maintain that gold’s volatility has been peaceful. Yet it is still far short of levels reached in other times of high price appreciation. Governments still face huge geopolitical tensions and macroeconomic challenges, shaking up financial markets. For this reason, investors are flocking to gold to reduce overall risk in their diversified portfolios.
Over the last few months, gold has went through some violent price movements. Such volatility only emphasizes its status as a risk asset as the world grapples with a challenging economic climate. This change in dynamics has thrown up a lot of questions about gold’s attractiveness to American investors. Already, many of these investors have little or no exposure to the precious metal. Yet the World Gold Council highlights that gold reduces overall portfolio risk by a mere 1.9 percent.
When properly contextualized by history, gold’s volatility is in fact right in line with all long-term averages. Indeed, even though we witnessed short-lived bouts of volatility last year, these swings in the markets soon returned to normal trajectories. According to the World Gold Council, the volatilities of all asset classes—including gold—have been stable. Perhaps not surprisingly, these trends are in line with the long-term historical record. This type of explosive behavior would indicate that, even with the recent strength in prices, gold has done so in an orderly fashion.
This leaves investors with an increasingly volatile environment where the benefits of traditional diversification are fading fast. Within this context, gold still plays a very useful role in reducing risk across an overall portfolio. The World Gold Council noted, “We know that gold has been an efficient source of portfolio diversification with its low correlation to equities and fixed income assets.”
Integrating even a small allocation of gold can make an outsized difference to portfolio risk. According to the World Gold Council, “In this current environment, adding gold to our hypothetical portfolio reduces the overall portfolio risk. In fact, adding 5 percent of gold reduces the portfolio risk by nearly 5 percent while its contribution to overall portfolio risk is negligible at 1.9 percent.” This newfound wisdom underscores the necessity of incorporating gold into any successful investment strategy designed to provide stability in an unstable world.
The reasons behind gold’s ups and downs are complex. Further exacerbating the market were increased geopolitical risks and macroeconomic uncertainties, such as tariffs and inflationary pressures. New found volatility rattled the gold market. In turn, investors began to recalibrate their portfolios in order to weather the storm of further uncertainty.
As investors look to find their way through these uncertain waters, the case for gold is more compelling than ever. The World Gold Council emphasized that “on the whole, all asset class volatilities remain broadly in line with their long-term averages.” This third observation points out the greater relative stability of gold across various other investment classes during times of market turbulence.