Gold's recent price surge affirmed its status as a safe-haven asset in times of economic and market turmoil. Diversifying an equity portfolio with physical gold has led to superior returns, according to an S&P Global Market Intelligence analysis of market data.

Within an asset portfolio, gold traditionally has functioned as an important diversification tool because of the commodity's low or negative correlation to other liquid assets, according to a March 14 post from Goldhub, a research site from a membership of miners in the World Gold Council.

"Gold historically benefits from flight-to-quality inflows during periods of heightened risk. By providing positive returns and reducing portfolio losses, gold has been especially effective during times of systemic crisis when investors tend to withdraw from stocks," Goldhub wrote.

An S&P Global Market Intelligence analysis of the period from June 30, 1999, to Aug. 12, 2019, shows gold's resilience during sharp U.S. equity downturns. The five worst trading days of the S&P 500 over that period all occurred during the 2008 financial crisis. On the S&P 500's worst trading day during that period, Oct. 15, 2008, the index tanked 9.0% while the gold closing price on the London Bullion Market Association was up 1.0%. More recently, on Aug. 5, the S&P 500 fell 3.0% and gold traded up 0.8%. The S&P 500's average daily return on the 50 worst trading days is negative 4.7%, compared to an increase of 0.5% for gold.

Gold's utility as a portfolio stabilizer was demonstrated again when volatility returned with a vengeance to the U.S. stock market in 2018. Inflationary fears stoked widespread selling as the S&P 500 lost 9.5% of its value from Jan. 29, 2018, to Feb. 8, 2018. In contrast, gold was down only 1.7%. Between Sept. 28, 2018, and the end of that year, during which the stock market suffered another stock sell-off, the variance was even more pronounced with a negative 13.5% return for the S&P 500 and a 7.5% gain for gold.

Easing of monetary policies, including the Federal Reserve's July 31 rate cut, as well as stock market volatility amid global trade tensions have contributed to a rally in the gold price on the London Bullion Market Association in the past year. Gold recently moved above US$1,500 per ounce for the first time in more than six years. On Aug. 12, gold closed at US$1,505.46/oz, up 23.9% on a one-year basis, compared to a 3.9% total return for the S&P 500.

Going back more than 20 years, gold has outperformed large-cap U.S. equities. Since June 30, 1999, gold's value has grown 476.5%, while the S&P 500's total return is 209.3%.

Allocating a percentage of a model portfolio to gold during the last 20 years would have boosted overall returns while also limiting the loss severity during equity downturns. A portfolio composed of 90% S&P 500 and 10% gold, rebalanced at the end of each June, returned 244.0%, with a trough of negative 35.9%. An 80/20 mix had a cumulative return of 278.5% and a minimum return of negative 30.5%.

Financial advisers have reached similar conclusions with different portfolio blends over different time periods. State Street Global Advisors' George Milling-Stanley, Robin Tsui and Diego Andrade found that investing 2% to 10% of a hypothetical multi-asset portfolio in SPDR Gold Shares, an exchange-traded fund backed by physical gold, showed higher risk-adjusted returns over a 15-year period than a portfolio without gold-backed exposure, according to a July report. State Street Global Advisors is a division of State Street Corp.

London-based Mobius Capital Partners LLP co-founding partner Mark Mobius told Bloomberg on Aug. 20 that allocating 10% of a portfolio to physical gold "makes sense" with the rest in high-yield stocks and possibly a small portion in bonds. He sees upward growth in the gold price given "money supply is up, up and up." Mobius also said that with the advent of cryptocurrencies such as bitcoin, "There's going to be a demand for real hard assets. And that includes gold because gold can play a role not only as an asset but also as a currency."

Some portfolio managers are comfortable with higher allocations. Michael Pento, president and founder of New Jersey–based investment advisory firm Pento Portfolio Strategies, had a 20% allocation in his portfolio in physical gold, according to an interview published July 27 on gold and silver news site SilverDoctors.com.