In a year of strong financial market returns, few assets have stood out more than gold. Across centuries, Gold has transformed from a static store of value—the “Golden Constant”—into a dynamic portfolio asset. Historically, gold underpinned global currencies, with governments pegging fiat to bullion for credibility. This changed in 1971 when former U.S. President Nixon ended the gold standard, liberating the metal. Since then, gold has delivered an impressive annualized return of around 7%, warranting a new moniker: the "Golden Ascent."

Initially, gold surged as a hedge against stagflation post-Bretton Woods. While developed market central banks spent decades reducing their reserves, new sources of demand emerged, such as gold-backed exchange-traded funds (ETFs) that democratized retail access. A structural break occurred following Russia’s invasion of Ukraine. The subsequent freezing of Russia’s central bank reserves sent a stark message to the world: in a system where Western financial assets can be weaponized, gold remains one of the few sanction-proof markets. With slow mining supply and complex demand dynamics, price movements defy historical models. Non-linear trends and past bubbles suggest another may be forming, though fundamentals can justify current valuations.

Despite its physical scarcity, available gold is valued at roughly one-quarty of global equities, underscoring its unique asset class status. Future potential demand catalysts include gold-backed stablecoins, African gold standards, and regulatory reclassification for banks and insurers. China's continued diversification and insurance sector adoption further support structural demand.

Gold's low correlation to stocks and bonds enhances portfolio efficiency. Historical risk-return analysis suggests that an allocation in the range of 8-10% could enhance portfolio efficiency, with higher allocations warranted during periods of elevated volatility or inflation. Current investor surveys reveal widespread under-allocation. Gold's ultimate utility lies in hedging "fat tail" risks—deep dollar weakness or severe geopolitical shocks, such as U.S.-China conflict. In an increasingly fragile world, the Golden Constant has taken on a more strategic role.

Heading into 2026, our tactical portfolio maintains a risk-on tilk, favoring equities over fixed income. Equity positioning is constructive across major regions, and we also maintain an allocation to global listed infrastructure. We continue to believe that the corporate profit growth story is more compelling than the search for yield.