Gold's volatility rose in 2025 but from a low base, back to normal levels. Despite the rise, adding gold to a diversified portfolio continues to help reduce overall risk

Analysis by the World Gold Council.

Yes, volatility rose in 2025…just like other growth assets and in line with historical averages.

Amid tariff uncertainties, inflationary pressures and geo-economic strife, there is no shortage of market, macro and geopolitical risks to feed market volatility.

To get a sense of the turmoil navigated by investors this year compared to last, Chart 1 shows the realised volatility of gold, US stocks and US Treasuries.

Volatility has increased in both equity and gold markets, on the back of a supercharged geopolitical and geo-economic environment, with a significant surge in equity volatility around the initial tariffs announcement earlier in 2025. US treasury volatility on the other hand has been on a declining trend.

On the whole, all asset class volatilities remain broadly in line with their long-term averages.

Chart 1: Equity and gold volatility have increased in 2025…but gold’s vol is below average

^{1-year rolling weekly annualised volatility for US stocks, European stocks, US treasuries, silver and gold*}

While gold’s volatility has risen alongside its strong price rally this year, it remains broadly in line with its long-term average and well below levels seen during previous periods of similar strong price performance (Chart 2). This suggests that, despite recent price strength, gold has moved in an orderly manner.

Chart 2: Despite the uptick in volatility in 2025, gold’s annualised volatility remains well below previous highs

^{Annualised gold volatility and returns*}

What has this meant for portfolios?

The uptick in volatility across equities coupled with a positive correlation between stocks and bonds, has led to higher portfolio risk – a wake up call for investors to find alternative ways to manage portfolio volatility. This has become especially important now that we live in a world of diminishing diversification benefits (Chart 3).

However, we know that gold has been an efficient source of portfolio diversification with it’s low correlation to equities and fixed income assets (Chart 4).

Chart 3: The benefits of diversification have moderated over time, but it’s better with gold…

^{Portfolio diversification benefit, rolling 36m*}

Chart 4:…and has pushed investors to explore new uncorrelated assets like gold in their portfolios

^{Rolling 36m correlation*}

Inflation and economic growth uncertainties affect stock-bond correlations differently: inflation shocks typically lead to positive bond-equity correlations due to its adverse effects on both asset classes; economic growth uncertainty on the other hand drives negative correlations as investors seek safety in bonds while stocks can suffer. We are currently in a low Growth vol/Inflation vol ratio environment, a signal of dominant inflation concerns.

Chart 5: Inflation is the dominant macro variable

^{Ratio of Growth/Inflation uncertainty and stock-bond correlation*}

In this current environment, adding gold to our hypothetical portfolio¹ reduces the overall portfolio risk. In fact, adding 5% of gold reduces the portfolio risk by nearly 5% while its contribution to overall portfolio risk is negligible at 1.9% (Chart 6).

Chart 6: Portfolio risk has risen post 2022, but adding gold can reduce overall risk

^{Risk contribution and portfolio volatility during different regimes}

In summary

In a turbulent year marked by heightened macroeconomic and geopolitical risks, gold’s volatility has increased alongside that of other assets, including major equity indices. That said, its long-term behaviour has remained broadly consistent, and comparable to that of other growth assets.

While short-term surges in price and trading activity led to brief spikes in volatility, these episodes quickly normalised, underscoring gold’s resilience as a strategic asset.

Against a backdrop where traditional diversification benefits are waning, gold continues to play a valuable role in reducing overall portfolio risk, reinforcing its importance for investors seeking stability amid uncertainty.

^Footnotes

^{1 The hypothetical portfolio shown in Chart 6 represents just one combination of assets; other combinations may produce different results.}