A trader works on the floor of the New York Stock Exchange in New York before the closing bell. [EPA]
A trader works on the floor of the New York Stock Exchange in New York before the closing bell. [EPA]

A diversification strategy that allocates 10% of investment assets to gold is drawing attention as uncertainty in global financial markets deepens.

The approach has gained traction as bonds — traditionally a safe haven — have begun falling in tandem with equities during sharp market selloffs. Analysts say investors should use gold not to chase high returns but to guard against the risk of stocks and bonds declining at the same time.

Hanwha Investment & Securities recommended a November asset allocation of 60% equities, 30% bonds and 10% gold in its report "Global Asset Allocation: Narrowing Options Even in Equities." The brokerage said that while financial market volatility could increase on concerns over an economic slowdown and a prolonged high-interest-rate environment, maintaining the existing allocation ratio remains appropriate.

The report paid particular attention to gold's role. In the past, falling equity markets were typically offset by rising bond prices, cushioning investment losses. Recently, however, inflation-driven interest rate increases have caused stocks and bonds to decline simultaneously.

In practice, an analysis by Hanwha Investment of bond returns during months when the S&P 500 index posted bottom-15-percentile performance found that average bond returns flipped from positive 1.2% between August 1994 and 2020 to negative 1.4% between 2021 and 2026.

The figures mean that when share prices plunge, bonds have also generated losses, weakening the defensive capacity of a diversified portfolio. Hanwha Investment said that adding some gold to a portfolio under such conditions can help limit investment losses.

However, simply increasing gold's weighting is not the answer. Hanwha Investment said its analysis of investment performance from 1988 to 2026 showed that a strategy with a 10% gold allocation produced only limited improvement in long-term returns. The purpose of holding gold, it said, is risk diversification rather than return maximization.

The near-term outlook for financial markets in November is not bright. Global central banks are easing their rate-cutting pace while excess liquidity among the Group of 10 major economies is also slowing. Financial conditions indexes are pointing toward tightening, which could weigh on risk assets such as equities.

"For November, we are maintaining the strategic asset allocation ratio of equities 60, bonds 30 and gold 10," said Shin Seung-yun, a researcher at Hanwha Investment & Securities. "In the short term, a decline in the economic surprise index, slowing liquidity and tightening financial conditions mean the overall direction across asset classes is not favorable."

Bonds also face headwinds from elevated interest rates for now, but Hanwha Investment said rates could fall on safe-haven demand if financial market volatility increases after the US midterm elections in November. Because bond prices rise when rates fall, the brokerage said it is maintaining a 30% bond weighting.

"Gold should be considered not as a tool for boosting returns but as a diversification and defensive instrument in the 5 to 15 percent range, to prepare for periods when both equities and long-term bonds decline together," Shin said. "In the asset allocation we propose, gold functions more as insurance against simultaneous weakness in stocks and bonds than as a means of generating profit."

On bonds, Shin said: "High interest rates will not come down easily due to inflation, supply-demand dynamics and AI-related corporate bond issuance, but we expect short-term rate volatility to emerge after the midterm elections. If the floor on rates moves lower, bonds will remain attractive, and we are keeping the 30% weighting."


th5@heraldcorp.com