{"id":38568,"date":"2026-03-25T13:55:07","date_gmt":"2026-03-25T13:55:07","guid":{"rendered":"https:\/\/www.europesays.com\/ch\/38568\/"},"modified":"2026-03-25T13:55:07","modified_gmt":"2026-03-25T13:55:07","slug":"gold-currency-hedging-and-risks-what-has-changed","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/ch\/38568\/","title":{"rendered":"Gold, Currency Hedging, and Risks: What Has Changed?"},"content":{"rendered":"

The behavior of the dollar since the beginning of the year and the uncertainty surrounding the market have led investors to analyze how the traditional safe-haven assets they turn to have changed and which is now the best option for their portfolios. Only financial advisors and asset managers can answer the latter question, but for the former we can find an interesting reflection in the Global Investment Returns Yearbook 2026, published by UBS, which analyzes 126 years of market performance.<\/p>\n

Undoubtedly, when discussing safe-haven assets, gold is first on investors\u2019 list, as it is perceived as a clear hedge against inflation. However, according to the UBS report, the relationship between gold and inflation is weak. \u201cOf the 28 years in which inflation exceeded 3%, we observe that gold returns were negative in 13 of them,\u201d they note.<\/p>\n

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As shown in the chart above, gold has been more effective at outperforming inflation over the long term. \u201cThe red line indicates that, since 1900, the real price of gold in dollars has increased 5.2 times, which is equivalent to an annualized return of 1.3%. In the 54 years following Bretton Woods, gold\u2019s annualized real returns were higher: 4.7% (U.S.), 5.8% (UK), and 4.3% (Switzerland),\u201d the report notes.<\/p>\n

Currency Hedging<\/p>\n

Regarding currencies, investors have historically considered the U.S. dollar, the Swiss franc, and the Japanese yen to be the most reliable \u201csafe havens.\u201d However, over the past three months, a broad debate has emerged about whether the U.S. currency could lose this status. As a result, investors have paid more attention to how to hedge currencies.<\/p>\n

On this point, the UBS report notes that institutional investors tend to hedge at least part of their portfolios. \u201cIn general, non-U.S. (non-USD) investors tend to hedge more and with higher hedge ratios, and bond investors hedge more than equity investors,\u201d the report states.<\/p>\n

The question is whether such hedging is worthwhile. According to the report\u2019s conclusions, on average, currency risk added around 6% to total risk, whether focusing on equities or bonds, although currency risk contributes proportionally more to the risk of bond portfolios. \u201cThis may explain the greater prevalence of hedging in fixed income portfolios,\u201d UBS adds.<\/p>\n

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Which Risks Dominate?<\/p>\n

If we think about today\u2019s markets, there is a clear consensus that geopolitics has become the main risk they face, but has this always been the case? According to the UBS report, the reality is that, historically, economic risks have outweighed geopolitical risks. \u201cIn many cases, investors would be right to \u2018look beyond the noise\u2019 of geopolitics. Using a simple regression of future global equity returns against an index of geopolitical threats, we find no relationship, whether looking one month ahead or one year ahead. However, geopolitical risk, whether related to armed conflicts or trade conflicts, clearly matters when extreme events occur with a significant economic impact on major nations. World War I, World War II, and the 1973\u20131974 oil shock were geopolitical events that led to three of the six worst episodes for major global equity markets since 1900,\u201d the report concludes.<\/p>\n

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Fortunately, these types of events are relatively rare; therefore, economic risk has historically been even more important for investors. According to UBS\u2019s analysis, of the four largest bear markets in peacetime, three were triggered by economic factors, while the 1973\u20131974 market crash was sparked by geopolitics but unfolded as an economic crisis.<\/p>\n

Diversification: The Conclusion That Holds?<\/p>\n

Investors believe that risk can be reduced through diversification, which is why they know that being insufficiently diversified entails high costs. However, diversification is becoming more difficult. By the end of 2025, concentration in the U.S. equity market had reached its highest level in at least 100 years, while correlations have also increased between developed and emerging markets, and between equities and bonds.<\/p>\n

Despite these challenges, UBS argues that diversification remains valuable. Its analysis of the past 126 years shows that, when currency risk was hedged, investors in the vast majority of markets achieved better results by investing globally rather than solely in their domestic market. \u201cDiversification between equities and bonds also likely helps reduce maximum drawdowns. Since 1900, equities and bonds have at times lost more than 70% in real terms; however, a 60:40 mix of equities and bonds has never fallen by more than 50%,\u201d the report concludes.<\/p>\n

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