Isio: Gold’s rally reinforces the appeal of income-generating defensive credit

Tom Wilson, Head of Credit Research at Isio, considers whether gold’s powerful rally truly offers dependable protection for investors. He notes that while the metal has thrived on geopolitical and debt concerns, its volatility and sensitivity to interest rates mean high-quality, income-generating credit remains a more reliable defensive allocation.

Tom Wilson, Head of Credit Research at Isio, comments on why high-quality credit still beats gold as a defensive allocation: “Gold’s rally in 2025 has been striking, delivering one of its strongest years in decades and outperforming many traditional asset classes. That performance was driven by a combination of falling interest rates, concerns around government debt levels, central bank buying and heightened geopolitical uncertainty, all of which reinforced gold’s appeal as an alternative store of value and have continued into 2026.

The problem with relying on gold for protection:

“While gold and equities both rose over the year, a closer look at the data shows their paths were quite different. Gold continued to perform its traditional role during equity market sell-offs, notably during early-year tariff concerns and later equity market wobbles, providing protection when risk sentiment deteriorated rather than simply behaving as a risk asset in disguise.

“That said, gold also outperformed even as equity markets rebounded strongly. This reflected a broader ‘dollar debasement’ narrative, concerning geopolitical headlines, and investor unease around the sustainability of global debt levels, which led some investors and central banks to favour gold over developed market government bonds as a store of wealth. Whilst this was welcomed by gold investors, it was a puzzling development for proponents of gold’s role as an equity hedge.

“The strength of gold’s rally reinforces the case for caution. Gold’s return profile can be volatile and unpredictable over shorter periods, and it does not always protect capital when inflation spikes or policy expectations shift. Following such a strong run, gold may also be more vulnerable to correction if key supportive factors, such as central bank purchases or easing financial conditions, begin to fade.

Why high-quality credit offers a more reliable defence:

“It is also worth recognising that, despite generating no cashflows, gold exhibits indirect duration characteristics through its sensitivity to interest rate expectations. This can introduce additional volatility and correlation with other asset classes, undermining its defensive qualities at precisely the wrong point in the cycle.

“For these reasons, while gold retains a role as a long-term diversifier and for investors looking for thematic exposure, we do not see it as a core allocation for portfolios seeking consistent downside protection or income-driven returns. Instead, we continue to favour high-quality, short-dated, and floating-rate credit, where regular income, clearer return drivers and capital structure seniority offer a more predictable and resilient source of defence across market cycles.”