The Case for Gold in Your Portfolio

Why Keep 5-10% of Gold in Your Portfolio?

The outstanding performance of gold in 2025 strongly reminds us of the crucial role it plays in investment portfolios during periods of inflation and currency market uncertainty. This year has been a real rollercoaster for global markets: for example, the Nasdaq Composite was at 20,056 points in February, but dropped to 15,268 by early April, a fall of nearly 24% triggered by fears of a global trade war sparked by US tariff measures. While the market largely bounced back by May, the reality of volatility clearly shows that stock markets often punish unprepared investors.

Gold: A Safe Haven in the Storm

As stock markets fluctuate, a long-known but often forgotten asset class rises steadily: gold. Since the beginning of the year, it has appreciated by more than 20%, currently exceeding $3,300 per ounce, recalling its historical role as a safe haven. Gold is not just a “barbaric relic,” as some economists call it, but an asset that holds value during times of a weakening dollar, geopolitical tensions, and inflationary pressures.

Historical Background and Global Significance

The dollar's role as a reserve currency has been in place since the Bretton Woods Agreement in 1944, when 44 countries pegged their currencies to the dollar, which was then convertible to gold at $35/ounce. This system, however, ended in 1971 with the Nixon Shock, resulting in gold prices soaring by more than 2,300% in the 1970s. Today, central banks around the world—particularly China—are re-diversifying their reserves, while the dollar's share in global reserves has decreased to 58%.

In the UAE, where the dirham has been pegged to the dollar since 1997 at the rate of 3.6725, the local price of gold closely follows dollar-based price movements, leading to a rise of over 20% this year. Due to local market retail premiums, buyers have effectively faced nearly a 25% price increase.

Why Should 5-10% of Your Portfolio be in Gold?

Stocks, particularly in the technology sector, carry significant risks, as the current valuation of the S&P 500 (CAPE ratio) was only higher in 2000 and 2021, both followed by major downturns. Additionally, the US budget deficit and recession fears could further weaken confidence in the dollar. While a dollar strengthening is also possible—such as after the Fed chairman’s April statements—gold can serve as a counterbalance to uncertainty.

The key to a diversification strategy is not to invest all assets in gold, but to allocate 5-10% to it, while keeping the rest of the portfolio in stocks and other assets with growth potential. Local UAE markets, such as the Nasdaq Dubai or the Dubai Financial Market (DFM), also face challenges, but local growth—like the 42% rise in the issuance of Islamic bonds (sukuk)—creates opportunities.

How to Get Started?

If you're considering gold investment, you have several options: physical gold (jewelry, coins, bars), gold-based ETFs, shares in mining companies, or even gold-based savings programs. It's important to note that when buying physical gold, local market premiums and storage costs can affect actual returns.

Summary

Gold does not replace growth assets but can stabilize the portfolio during market storms. If global uncertainty continues to rise in the coming months and the dollar's position further weakens, gold may play an even greater role among investors. Therefore, it's worth considering: investing a portion of your wealth in gold can help preserve the value of your money while keeping the door open for growth.

(Source: Based on Dubai Financial Market (DFM).)