Why gold remains a strategic hedge rather than a cyclical trade

Matt Bance, Solutions Strategist and Portfolio Manager at T. Rowe Price, explains why gold’s move to new highs strengthens its role as a strategic portfolio hedge rather than a short-term cyclical trade.

Gold’s move through previous record highs underscores the rationale for our long-standing favourable view of gold as a strategic portfolio diversifier as we move through 2026. We view recent price action not as a signal to chase performance, but as confirmation that the macro conditions under which gold has historically added value – policy uncertainty, institutional strain, and geopolitical risk – remain in place.

From an asset-allocation perspective, we favour gold while maintaining an underweight stance on duration, as gold should, like bonds, help cushion equity drawdowns during periods of economic weakness and declining real yields. However, it has also demonstrated greater resilience than bonds when real yields rise. This reflects sustained, largely price-insensitive demand from central banks seeking to diversify reserves, contributing to a partial decoupling from the historical inverse relationship between real yields and gold prices. We see this structural support as enduring.

Several broader considerations reinforce this assessment in 2026. Starting valuations for the US dollar on a trade-weighted basis remain elevated, increasing vulnerability to asymmetric downside shocks. At the same time, more erratic policymaking and heightened scrutiny of central bank independence – highlighted recently by Chair Powell’s remarks on unprecedented legal pressure – have increased uncertainty about the dollar’s reaction function during periods of stress. In this environment, gold benefits as an asset perceived as outside the fiat system.

 Importantly, strength has not been confined to gold alone. Moves across the broader precious-metals complex, most notably silver, have been striking, with the gold–silver ratio compressing from above 100 in April to around 49 currently.

Taken together, gold’s performance reflects the intersection of geopolitical risk, inflation uncertainty, and institutional credibility concerns, reinforcing its role as a strategic hedge rather than a cyclical trade.