5 reasons why investors should consider physical gold

Once the basis for the entire global monetary system, gold has been valued for thousands of years as a durable, reliable source of investment which is scarce enough to prevent the market being flooded.

Recently, the broader market backdrop has been supportive for gold, with central banks buying gold consistently for a few years now. In fact, the People's Bank of China extended its gold buying streak to a 21st consecutive month in July 2026.

In addition, growing market concern over mounting US federal debt has helped to fuel demand for gold from investors.

With inflation proving to be sticky and fears of a recession rising, astute investors are reconsidering their portfolios and looking at diversifying investments. While gold is one of the oldest investments known to man, its value is often underestimated given it does not produce an income. But with the current murky economic forecast, it may be worth considering physical gold as an addition to your portfolio.

Below, we outline five reasons we think gold has a place in investors’ portfolios.

5 reasons to invest in physical gold:

1. Gold retains its value

As a physical commodity, gold has value outside the banking and economic systems, so it can be used by investors trying to preserve their wealth against future market fluctuations, bank failures or economic recessions.

Gold is often viewed as a safe haven investment, meaning it can be expected to retain or increase in value during market stress events. In addition, unlike fiat currencies, gold cannot default, be issued at will or go bankrupt.

2. Hedge your portfolio

Many investors hold gold in their portfolios as it provides diversification from other assets. When markets fluctuate, gold will often respond differently to financial events than other assets. As such, investors can reduce their risk exposure to other assets. While not always the first choice for growth of capital, gold can offer protection and stability compared to other assets.

The table below shows the correlation of gold bullion compared to other asset classes. In the table, a 1 is perfectly correlated. The lower the number, the lower the correlation. Over the 10 years to the end of August 2026, gold bullion has been negatively correlated to Australian equities, international equities and A-REITs. It has had a low correlation to emerging markets and both Australian and global bonds.

Table 1: Asset class correlations, September 2016 to August 2026

Source: Morningstar Direct, Results are calculated monthly and assume immediate reinvestment of all dividends. You cannot invest in an index. Past performance is not indicative of future performance. All returns in Australian dollars. Indices used Australian equities – S&P/ASX 200 Index, International equities – MSCI World ex Australia Index, Emerging markets – MSCI Emerging Markets Index, A-REITS – S&P/ASX 200 A-REIT Index, Global bonds – Barclays Global Aggregate Bond Index A$ Hedged, Australian bonds – Bloomberg AusBond Composite 0+ Yr Index, Gold bullion – LBMA Gold Price PM.

3. Limited supply

Gold is a finite resource. The World Gold Council estimates “that around 222,600 tonnes of gold have been mined throughout history, of which around two-thirds has been mined since 1950.” The council also estimates that only around 61,000 tonnes of gold reserves are underground. While new gold mines are still being found, experts say discoveries of large deposits are becoming rarer.

I highlighted scarcity in an AFR opinion piece last week, “Scarcity is what the market has irrationally underpriced and in an inflationary environment, scarce resources can be a valuable commodity (pun intended),” Neiron wrote.

4. Preserves purchasing power

Inflation can have a crippling effect on wealth, diminishing purchasing power and total returns. But according to the World Gold Council, gold can help investors protect against potentially excessive asset price inflation and currency debasement.

For example, according to the ABS, consumer prices are about 110% higher in 2026 than average prices since 2000. In other words, $1.00 in 2000 is equivalent to about $2.10 today.

Putting this into hypothetical gold terms:

• $100,000 left as cash in the year 2000 would buy roughly $47,600 worth of goods today.

• $100,000 worth of gold in the year 2000 would have retained its purchasing power. Because the gold price has appreciated since then, it would have far exceeded inflation. The price of gold averaged around US$279 per ounce in the year 2000. Today, gold is trading at around US$4,350 per ounce, more than 15 times its 2000 prices. It is important to note however that the price of gold does go up and down.

5. Universal currency

Gold is a universal currency that is used, recognised and traded around the world. It gave rise to the concept of currency, in theory, if you have gold, you have something that can be traded for goods and services.

One way to invest in gold is via an ETF. As there are five key reasons to invest in gold, we thought it would be useful to provide five things to consider when assessing a gold bullion ETF.

5 considerations for your gold ETF

Gold-backed ETFs offer investors exposure through the many benefits of passive ETF investing, including the access and transparency of intraday trading on ASX and lower average expense ratios than those of many of the other options of buying gold.

But not all gold ETFs are the same. There are five things that differentiate

gold bullion ETFs:

1. Holdings - investors should carefully review the holdings to determine how much of the ETF’s portfolio is invested in physical gold. Some gold ETFs may have a derivative exposure to gold. The holdings, or bar list, should be easily accessible.

2. Purity - There is a standard accreditation of gold bars that is set by the global organisation known as the LBMA (London Bullion Markets Association). They have a list of official refineries, and those refineries must produce gold bars of a standard of 9995 or above. That indicates that the gold is 99.95% pure gold. Each gold bar produced by a refinery is stamped by the refinery, it will show the quality and its unique bar number. That way each gold bar is traceable back to its origins. The bar list from the holdings detail the refiner, gold bar number, ounces and each bar’s quality.

3. Where the gold is sourced – Gold is mined all over the world, but geopolitical and ethical considerations may influence where investors prefer their gold to come from. For example, under LBMA guidance, Russian gold bars that were in market prior to 7 March 2022 are still considered acceptable by the precious metals authority. Given the geopolitical environment we are in today, we think there is merit holding Australian mined, refined, insured and high-quality gold in your ETF, either way, the source of the gold should be identifiable.

4. Where that gold is stored – Gold can be stored in vaults in Europe, the USA or Asia and insured locally under their own agreements. Australia also has facilities for gold storage, such as the Perth Mint.

5. Fees – One of the advantages of ETFs is low cost, and a gold ETF, should reflect this.

You can assess VanEck’s Gold Bullion ETF (NUGG).

In summary, a list of the allocated gold bars that make up the Fund’s assets are available in its ETF Bar list. The weighted average assay (the purity) of the gold held was 99.99% (as at the time of writing), is held in a vault by The Perth Mint and is sourced from Australian gold producers whose operations adhere to the LBMA Responsible Gold Guidance. NUGG’s management fee is a low 0.14% p.a. NUGG also offers investors the option of converting their NUGG holdings into physical gold from The Perth Mint.

Key risks

An investment in the ETF carries risks associated with: Gold pricing risk, currency risk, custody risk, gold bullion risk, concentration risk, liquidity risk, operational risk and regulatory and tax risk. See the PDS and TMD for details.