Where does the long-term allocation value of gold lie? What is the core significance for ordinary people to allocate gold?

Most people’s understanding of gold still stays at jewelry, weddings, and gold price fluctuations. But if we look beyond short-term price movements and consider the long term, gold has long surpassed its decorative attribute and is recognized by the global market as a hard currency asset that has withstood multiple economic cycles and changes in currency systems.

Gold does not provide dividends, interest, or rental income; its value is anchored in natural scarcity and a global wealth consensus. It naturally possesses anti-inflation and systematic risk hedging characteristics. Facing today's macroeconomic situation of inflation eroding purchasing power and a constantly changing global monetary environment, the demand for inflation-resistant and risk-hedging assets is increasingly essential. For ordinary people, investing in gold is not about short-term gains but about leveraging its role as a long-term "base position" to achieve balanced asset allocation.

Many people wonder: since gold prices fluctuate in the short term, why is it still said to have intrinsic long-term value for anti-inflation and risk resistance?

First, it is important to clarify: the long-term value of allocating gold does not mean the price always rises or that there are no short-term pullbacks. What it truly reflects is the ability to preserve value across time. In the short term, gold prices are influenced by factors such as interest rates, the dollar, inflation data, and market sentiment. In the long term, gold's value foundation is based on three aspects: its independence from any single credit system, natural scarcity, and repeated recognition by global capital in inflationary and risky environments.

First, gold is different from fiat currency. The legal currencies we use daily, such as RMB or US dollars, are essentially issued based on national credit. Their purchasing power is affected by inflation, interest rates, fiscal expansion, and monetary policy changes. When the money supply expands and prices rise, ordinary people’s real purchasing power may be diluted unconsciously. Gold, however, has no issuer, no debt attributes, and does not depend on the credit of any one country, institution, or company, which gives it a certain value storage function when monetary credit is challenged.

Second, gold is naturally scarce. Unlike paper money which can be supplied in quantity, stocks which can be issued, or real estate which can be built, the global reserve of gold is limited, extraction cycles are long, and supply growth is relatively slow. This scarcity supports gold’s long-term value and draws attention during periods of rising inflation, declining currency purchasing power, or when markets reassess credit assets.

Third, gold can play different roles during different economic cycles. During economic expansion, gold benefits from jewelry and industrial demand; during market volatility, gold acts as a safe haven; when monetary credit is under pressure, gold demonstrates its store of value function. Because gold’s value does not rely on a single logic, it continues to attract allocation demand in various macro environments.

Over longer time frames, this characteristic of gold becomes even more apparent. Over the past 20 years, gold has not only risen but also experienced significant corrections; yet after multiple economic cycles, monetary policy changes, and market volatility, gold still shows strong long-term recovery and cross-cycle characteristics.

Looking at gold's performance over the past two decades, it has not been a one-way upward trend. Gold saw significant corrections during the 2008 global financial crisis, the 2013 Fed exit from quantitative easing, and the global aggressive rate hikes in 2022. But after each pullback, gold ultimately recovered and returned to a long-term upward trend.

Since 2005, gold has achieved positive returns in most years. Even after a nearly 28% adjustment in 2013, it subsequently recovered and set new highs. Especially in the past two years, gold has performed strongly again, proving its long-term value has not weakened with changing market conditions.

Essentially, gold is one of the few assets that connect the commodities market, financial market, and monetary system simultaneously. During economic growth, it benefits from rising demand; in times of volatility, it serves as a safe haven; when monetary credit comes under pressure, it acts as a store of value. Precisely because gold’s value does not depend on a single logic, it maintains allocation demand and exhibits vitality across cycles in different environments.

Many ordinary investors misunderstand gold allocation, thinking gold rises slowly, is not exciting enough, and lacks the short-term momentum of stocks or thematic funds. But the core function of gold is never about seeking short-term high returns, but about playing a defensive and risk-diversifying role in asset portfolios.

For ordinary people, wealth accumulation mostly comes from salary, savings, and long-term investments—it is hard earned. When deposit interest rates are low, inflation remains resilient, and market volatility is frequent, concentrating assets in a single direction can make one vulnerable to certain risks. The value of gold lies in adding an asset to the portfolio that does not follow the traditional pricing logic.

First, gold helps hedge against declining currency purchasing power. Inflation does not reduce the numbers in your account but diminishes what the same amount of money can buy. Over the long term, changes in prices, rising living costs, and fluctuations in purchasing power all impact real wealth. As a globally recognized physical asset, gold often offers a hedge in inflationary environments, helping portfolios adapt to changes in purchasing power.

Second, gold helps optimize asset structure. Many ordinary people’s assets are heavily concentrated in deposits, stock funds, or real estate. When the market is good, focused allocation may bring strong returns; but when the equity market is volatile, the real estate cycle changes, or economic expectations weaken, portfolio volatility increases. Gold is driven by factors different from those of stocks, bonds, or real estate. Including a moderate gold allocation helps diversify risk, smooth volatility, and improve portfolio balance.

Third, gold can provide some defensive properties in uncertain environments. Whether it’s rising inflation, increased geopolitical risk, economic cycle fluctuations, or changes in monetary policy, gold draws attention for its safe-haven and monetary attributes. For ordinary investors, allocating gold should not be seen as capturing short-term cyclical returns, but as leaving room to cope with change in a complex long-term environment.

For long-term asset allocation, besides the ability to endure cycles, the key is generating reasonable returns over the long term. Historical data show that gold not only diversifies risk but also demonstrates noteworthy long-term returns.

According to historical data, whether since 1975 or since 2005, the long-term annualized return of gold is among the top major global assets. Compared to traditional defensive assets such as bonds and real estate, gold’s long-term returns are not inferior, and compared to some equity assets, gold has demonstrated strong return resilience.

This means gold is not only valuable when risk arrives. It can serve its anti-inflation and risk-hedging purpose during changes in inflation and credit environments, and also provide returns distinct from traditional assets and risk diversification in long-term investments. For ordinary investors, this characteristic of not moving in perfect sync with other assets highlights gold's allocation value.

For the average investor, gold is better used not as a tool for chasing short-term price swings but as an asset class in a long-term allocation framework, with an independent pricing logic that diversifies risk and strengthens portfolio resilience.

The value of gold does not lie in performing the best in every market trend, but rather in providing a different return source when the market environment changes. Stocks are influenced mainly by corporate profits and economic cycles, bonds by interest rate environments, real estate by regional supply-demand and policy cycles, while gold is more related to inflation, interest rates, the dollar, monetary credit, and safe-haven demands. This difference gives gold a unique and irreplaceable role in portfolios.

Therefore, the core significance of gold allocation for ordinary people is not to pursue overnight wealth, nor to precisely predict the next gold price movement, but, in long-term investing, to add an asset that can cope with inflation, credit fluctuation, and market uncertainty, aiming to control risks, smooth volatility, and preserve long-term purchasing power.

To sum up, gold’s long-term allocation value does not come from short-term price volatility, but from its scarcity, lack of credit backing, anti-inflation properties, and cross-cycle configuration advantages. For the average investor, gold is not meant to replace stocks, bonds, or other assets, but to provide a more balanced, long-term allocation option in a market where uncertainty is constant.

With its anti-inflation and geopolitical risk hedging attributes, plus long-term support from global loose monetary policies and central bank gold buying, gold has become the "ballast stone" of asset allocation.

Editor: Zhu Henan