Gold’s role as a diverse hedge gains renewed importance amid shifting market dynamics

Different market shocks are driven by different forces, which is why no single diversifier can do everything. Coutts says the ideal hedge would deliver steady, uncorrelated gains, hold up when markets are volatile and perform especially well when equities fall sharply. In practice, it argues, investors need a blend of protections rather than a single all-purpose answer.

The bank’s current toolkit includes bonds, and in some portfolios liquid alternatives, gold and targeted currency diversification. Of those, gold is the newest addition. Coutts points to a relatively small gold market and says shifts in demand from a major buyer can move the balance between supply and demand. It says one of the biggest changes in recent years has been the buying by central banks, with Bloomberg reporting that US dollar-denominated reserves, after valuation adjustments, are now below gold reserves in the global central banking system for the first time since the International Monetary Fund began publishing the data in the late 1990s.

That backdrop helps explain why Coutts believes gold still deserves a place in a broader diversifying allocation. Its view is echoed by the World Gold Council, which has argued that gold has strategic value precisely because many assets that look uncorrelated in calmer periods can start moving together when markets are stressed. VanEck has made a similar case, saying gold has historically been useful during crises because of its low correlation with traditional assets over long periods.

Coutts is also warning against judging diversifiers too quickly. It says gold has risen in the first month of equity market corrections only about half the time over the past 20 years, but has been positive in roughly 90% of cases over the following 12 months. The implication is that early weakness does not necessarily undermine its defensive role, because investors often sell resilient holdings to raise cash when stress first hits.

The World Gold Council’s research on monetary policy points in the same direction. It says gold has tended to do better when the Federal Reserve pauses or eases policy, and that its performance can improve in the intermediate period after a tightening cycle. That matters at a time when markets remain sensitive to rate expectations, inflation pressure and the chance of policy reversals.

Coutts says its own positioning was already more diversified at the start of 2026, with exposure across G7 government bonds, different currencies, gold and liquid alternatives where suitable. That allocation, it says, helped portfolios through volatility linked to tensions in the Middle East. The firm’s message is that downside protection should not depend on predicting the next recession, oil shock or fiscal accident, but on building portfolios able to absorb a range of outcomes.

That broad approach is increasingly important as market conditions change quickly. The World Gold Council has also warned that rising margin debt can leave equities more vulnerable, while some academic work has questioned how reliable gold remains as a safe haven in the most intense episodes of market stress. Even so, Coutts argues that the case for diversification has not weakened. Instead, it says investors need several different diversifiers, each suited to a different kind of risk, rather than relying on one asset to do all the work.