Why 5% of Portfolio in Gold Is Far From Adequate in 2025?

As a special asset class, gold’s role in a portfolio is crucial because it acts as both a safe haven asset and a hedge against inflation. In 2025, considering that a series of policies after Trump took office could bring higher inflation, hold 5% precious metals in the portfolio is clearly not enough.

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Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management, said in an interview with Kitco News that he expects gold prices to rise about 10 percent next year. He noted that the biggest short-term challenges for gold in 2025 will be rising real yields and strong growth in the U.S. economy.

However, despite some short-term volatility from rising real yields, gold’s long-term uptrend remains in place as continued central bank purchases create new momentum for the market.

Bruce stressed that central banks are far from ending their purchases of gold, while reducing their investments in the US dollar. During the Cold War, gold accounted for about 30 percent of central bank reserves. A few years ago, that number was down to about 10 percent. By 2025, it may not be back to 30%, but 20% or 25% is highly probable. Over the medium term, this remains the single biggest source of support for gold demand.

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Analysts point out that gold may not generate another 30 percent gain next year as it did in 2024. But gold is still an important asset that investors want to own, and it is recommended to allocate 9.5% of the portfolio to gold, using the precious metal as an important hedge. Bruce believes that if there are some unexpected black swans next year, gold should perform better.

He added that until 2024, many investors appear to be turning their backs on gold as higher bond yields raise the opportunity cost. But judging by gold ETF inflows, many institutional investors have quietly increased their positions. After the US election in November, the gold market saw a wave of selling due to the crazy rallies in US stocks and bitcoin. But so far, gold has held steady above $2,600 an ounce.

Analysts point out that 2024 is a big year for gold, but that doesn’t mean the end of the bull market. Considering that the total holdings of global gold ETFs are still at the low level in the past few years, the room for rising demand for future allocation is still objective, which will also become a strong support for the upward space of gold prices.

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