Debunking Myths: Does Gold Really Diversify?

gold bar with calculator, eye glasses and portfolio

Conventional market wisdom says gold provides great diversification for your portfolio, but is this really true?

This is the perfect time to find out for yourself.

Stocks have been giving retirement investors a particularly rough ride, with scary headlines appearing almost daily. How quickly fear can replace greed as the new market paradigm, and then shift right back again!

Could owning gold help lessen the impact and stress of market volatility on your financial future, and maybe even improve your returns?

A recent study by financial analyst Steven Hanly provides a powerful answer to this question. Hanly went back 45 years to see which alternative asset class had the most positive effect long-term on an average stock and bond portfolio.

In the study, he quantified the diversification benefits that gold, commodities, long-term U.S. Treasuries, and REITs provide to a portfolio of mostly stocks and bonds. Would they dampen risk? Would they improve returns?

The bottom line is YES: gold added a crucial element of diversification to portfolios of stocks and bonds.

“Adding gold significantly helps all metrics,” wrote Hanly. “Most noticeable to me is how adding gold to a portfolio of stocks will actually increase the overall returns (rather dramatically) while significantly reducing risk.”

That’s a powerful combination for retirement investors who need to build wealth and protect their family legacy over many years and market cycles.

“Over long time horizons gold also shines at reducing variation and minimizing losses,” concludes Hanly. “Gold deserves a place in virtually any investment portfolio (that does rebalancing) to reduce risk in the portfolio.”

Definitely something to consider at a time where 1000 point daily market swings no longer seem like an impossibility.


Last week, Goldman Sachs commodity analysts significantly increased the famed bank’s forecast for the yellow metal.

They predict that 2019 will see gold prices reaching $1,450 an ounce. The revisions are up from Goldman Sachs’ previous forecast of $1,225.

Goldman sees upward pressure on gold prices from:

1. A weaker U.S. dollar
2. Higher inflation
3. More demand from market hedgers in a choppy market environment

In addition, Goldman analysts predict emerging-market growth of above 6% for 2018. They believe this will boost household wealth, giving consumers in those markets more money to buy more gold.

Current buying trends seem to back this idea. Daniel Hynes, ANZ senior commodity strategist, just reported “relatively strong gold demand coming through in January leading into [the] Chinese New Year. We expect to see double-digit growth in gold demand in 2018.”

Capital Economics analyst Simona Gambarini agrees, forecasting solid demand in China going into the Lunar New Year.

“Gold demand ahead of the Chinese New Year has been relatively strong,” Gambarini said.


Analysts at TD Securities just announced that a target of $1,380 per ounce gold is within reach in 2018.

TD Securities’ head of commodity strategy Bart Melek and commodity strategists Ryan McKay and Daniel Ghali think a breakout in gold could be just around the corner.

“Underlying demand will likely remain firm as investors keep gold positions to diversify from equities, which are now known to be vulnerable to sharp corrections, with specs having room to grow,” said the TD research note.

The downward slide in the U.S. dollar and the expectation of a more dovish Federal Reserve are strong supporting pillars for gold, says TD Securities.


The outlook isn’t good for our nation and the U.S. dollar. No wonder our stock market is running out of steam quickly.

Sadly, our government continues to build a house on a foundation of sand. Government estimates show that the U.S. deficit will increase this year to exceed $1 trillion in fiscal 2019 and beyond.

Even worse, this is before anyone adds in the additional costs of recent tax reform and the two year budget!

You may have already begun to feel the effects of rising inflation on your everyday life: rent, food and other costs are on the move all around us now.

If history is any guide, fear may be replacing greed as the emotion driving the financial markets for the foreseeable future.

Long term research shows that gold is a proven store of value that can provide you with diversification – and possibly even improve returns — in tumultuous times.

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