Should you add gold to your portfolio when there is market volatility?

Gold has long been viewed as a potential hedge during periods of uncertainty, particularly when markets are volatile or economic conditions feel unsettled. With geopolitical uncertainty in the Middle East causing market volatility in the first half of 2026, some long-term investors may be wondering if gold can play a role in diversifying their portfolio.

Adding gold to your portfolio is always a personal choice based on your investment goals, time horizon and risk tolerance. That said, it’s important to understand what drives gold prices and how investors typically gain exposure, which can help inform your decision.

What impacts the price of gold?

Between January 2025 and January 2026, gold doubled in price. Since then, the price has pulled back, but its 200-day moving average in May 2026 was still around $4,400 per ounce, up from where it was a year ago. While the stock market hit new records in June, geopolitical uncertainty and inflation concerns may still make gold an attractive asset for a portfolio.

"Economic and geopolitical uncertainty also tend to be positive drivers for gold, due to its safe-haven status and ability to remain a reliable store of value," wrote J.P. Morgan’s Global Research team in December 2025. "It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress."

Gold is frequently described as a hedge against volatility and inflation because it has historically behaved differently from stocks and bonds during certain periods of market stress. When equity markets experience sharp declines, investors may turn to gold in an effort to preserve value or reduce overall portfolio risk.

This perception is rooted in gold’s long history as a store of value and its limited supply. Gold’s value is not directly tied to stocks, bonds or real estate, which can make it appealing when investors feel uncertain about the broader economic outlook.

However, gold does not always rise during periods of market volatility or economic recession. Its effectiveness as a hedge can vary depending on the source of volatility, interest rate conditions and investor behavior at the time.

Here’s a closer look at the key factors that can influence gold prices, often simultaneously.

Interest rates, inflation and currency movements

Gold does not generate income, so rising interest rates can increase gold’s opportunity cost by making yield-bearing assets more attractive – particularly when real rates (adjusted for inflation) are positive or moving higher. However, when real rates fall, the dollar’s value weakens, or economic and geopolitical uncertainty spikes, investors may seek a store of value outside of the financial system. Central bank demand, momentum and sentiment also play a role, meaning gold doesn’t always move in lockstep with rates or inflation alone.

Geopolitical events and trade policy

Early 2026 began with intensified geopolitical strain, including the conflict in Iran in late February and renewed uncertainty around trade policy that began in 2025. In fact, recent academic research from a Swedish university found that 2025 recorded the highest number of conflicts between countries since World War II and one of the highest levels of conflict-related fatalities in decades.

When risks like these arise and the outlook becomes harder to price, investors often look to strengthen their diversification – adding “safe-haven” exposures such as gold for its liquidity and potential role as a store of value during volatile periods.

Central bank demand

Under the Bretton Woods system, sometimes loosely described as a "modern gold standard,” foreign central banks could exchange U.S. dollars for gold at a fixed price – an arrangement that depended on the U.S. holding enough gold to keep that pledge credible. As dollar claims grew relative to available gold, the system became harder to sustain, and the U.S. suspended official dollar-to-gold convertibility in 1971.

Today, central banks hold roughly 20% of their foreign exchange reserves in gold. Buying by central banks surged in 2025 and is expected to remain strong in 2026, in part because gold can diversify reserves, reduce reliance on any single currency and provide a highly liquid asset with limited counterparty risk during periods of geopolitical stress.

Where could the price of gold go this year?

With gold prices rising above $5,000 per ounce in January and pulling back to around $4,100 in mid-June, our strategists’ outlook is now for gold to reach a range of $5,500 to $5,800 by year’s end. Gold’s price has been driven largely by central banks, which view the metal as a way to diversify their reserves away from the dollar, as well as retail investors who may have been buying the metal to hedge their portfolios against geopolitical uncertainty and inflation concerns.

Ways to invest in gold

There are several ways investors can gain exposure to gold, each with different risks, costs and potential benefits.

Gold ETFs or funds

Gold exchange-traded funds (ETFs) and mutual funds offer a relatively straightforward way to gain exposure to gold prices without owning the physical metal. There are a few types of gold ETFs: those that hold physical gold, ETFs focused on gold mining companies and gold futures ETFs.

Gold ETFs can provide liquidity and ease of trading compared with owning physical gold, though they may carry fees and do not offer direct ownership.

Gold stocks

Investors can gain indirect exposure to gold through shares of mining and production companies, typically by buying stocks through a standard brokerage or investment account. It’s important to note, however, that mining equities don’t track gold one-for-one and may come with unintended idiosyncratic risk tied to company and jurisdiction factors (e.g., costs, operations, leverage, regulatory/geopolitical risk).

Physical gold coins or bars

Some investors may choose to buy gold bullion – physical gold – in the form of coins or bars. Direct ownership of the metal may appeal to those who value tangible assets and independence from financial intermediaries.

Buying physical gold also involves practical considerations, however, including storage and insurance costs, as well as resale logistics.

Futures and options

Gold futures and options allow investors to speculate on future price movements or hedge existing positions. These instruments are complex and can involve significant risk, including the possibility of losses that exceed the initial investment.

Because of these risks, investors considering futures or options may benefit from discussing their approach with a trusted financial professional.

The bottom line

Gold has drawn increased attention amid tariff discussions, geopolitical uncertainty, sticky inflation and market volatility since early 2025. While it is often viewed as a hedge against risk, the price of gold can vary depending on economic conditions and investor behavior.

Investors considering gold may want to weigh its potential benefits against its limitations and consider how it fits within a diversified portfolio. A thoughtful, long-term approach can help determine whether gold aligns with your individual financial goals.

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