Gold still matters: Gold cools from record highs, expert urges investors to pair it with equities for stability

Gold prices slipped more than 2% on Tuesday as investors booked profits after the yellow metal hit an all-time high in the previous session, with sentiment shaped by expectations of U.S. interest rate cuts and strong safe-haven demand that have driven an extraordinary rally this year.

As of 10:15 GMT, spot gold fell 2.3% to $4,256.19 per ounce, retreating from Monday’s record peak of $4,381.21. U.S. gold futures for December delivery were down 2.1% at $4,269.60 per ounce. The U.S. dollar index rose 0.3%, making gold more expensive for investors holding other currencies.

The extraordinary surge in gold this year reflects investors’ growing unease about fiat currencies and the long-term health of global markets. Yet Tuesday’s drop highlights that even in bull markets, temporary corrections are inevitable as investors lock in profits.

Alok Jain, founder of Weekend Investing, said the recent rally underscores gold’s enduring role as a hedge against crises — not just in 2025 but across decades and geographies. “Gold protects investors when everything else breaks down,” he noted, pointing to historical parallels from Japan to China to Europe.

Jain drew on multiple global case studies to illustrate how gold has historically outperformed equities during long market stagnations. “Take Japan’s Nikkei 225,” he said. “After a 40-year rally that ended in 1990, the index took 35 years to recover. Yet gold, in yen terms, rose nearly 950% during the same period.”

He explained that combining 50% gold with 50% equities — and rebalancing monthly — would have yielded far higher and smoother returns than pure equity investing. In Japan, such a balanced portfolio generated a compound annual growth rate (CAGR) of 4.4%, compared to equities’ flat performance.

Similar patterns emerged in China, the U.K., Spain, and Italy, where stock markets have delivered little over the past two decades. In contrast, gold in local currencies rose between 600% and 1,500%, cushioning long-term investors from prolonged market slumps. “Even in developed economies, a 50/50 gold-equity allocation outperformed equities alone — sometimes by fivefold,” Jain said.

Despite the correction, gold remains up over 63% in 2025, propelled by a potent mix of geopolitical tensions, economic uncertainty, central bank buying, and expectations that the U.S. Federal Reserve will soon pivot to rate cuts. Markets are now focused on the upcoming U.S. Consumer Price Index (CPI) data, due Friday, which is expected to show a 3.1% year-on-year rise for September—a number that could solidify bets on a 25-basis-point rate cut next week.

Asset allocation

Jain cautioned against what he called “recency bias” — the assumption that markets will always rise because they have done so in recent decades. “India has enjoyed a 35-year bull market, but history shows no market rises forever,” he warned. “A simple allocation to gold ensures smoother portfolio performance and guards against black swan events.”

He compared gold’s relationship with equity to a “perfect pairing.” “Equity is like wine and gold is the cheese — both strong on their own, but magical together,” Jain said.

As major global institutions such as Morgan Stanley and Goldman Sachs now recommend 20% gold allocation in portfolios, Jain suggested a practical rule of thumb: allocate a percentage of your net worth to gold equal to half your age. “For a 40-year-old investor, that’s about 20% in gold — an allocation that can balance risk and reward over decades.”

Even after Tuesday’s decline, gold’s long-term story remains intact. As Jain put it: “Gold hasn’t moved — everything else has. When currencies falter, gold simply reveals their weakness.”