Gold's status as a portfolio diversifier came into sharper focus this week as the precious metal breached the $4,000 milestone. The commodity – long established as a safe haven in times of turmoil – has rebounded this year as investors fed on dollar depreciation, geopolitical rifts and lower interest rate expectations, with both central banks and retail buyers piling in. But in a recent LinkedIn post, Christopher Cruden – a “gold agnostic” fund manager whose Insch Kintore strategy combines currency and commodity trading – warned that Investors who bought gold to reduce portfolio risk can “expect an unpleasant surprise.” Gold prices hit a record high this week, with spot and futures prices above $4,000 as investor exuberance continues. “We've had just gold for two or three years that just went up. All the world knows is that if you buy gold, it goes up. But that's not always true,” Cruden told CNBC. “When I entered the industry in 1979, gold was priced at $850 an ounce, which was an all-time high. Three years later it had lost 65% to 70% of its value.” Its quantitative investment strategy trades gold against the daily spot price movements of a basket of major G7 currencies. Specifically, it uses the currencies – the dollar, the pound sterling, the euro, the yen, the Swiss franc, the Australian dollar and the Canadian dollar – as the currency crosses the precious metal. Designed as a “dynamic hedge” against gold, the Kintore fund's computer-based trading model means it is “resolutely bi-directional”, meaning it can benefit from both huge rises and sharp falls in the price of gold. Where it tends to falter is during sideways, trendless markets, where there is no clear price direction, or episodic spikes in volatility, which can disrupt price momentum. “As a systematic trend follower, I have absolutely no view on gold. I don't care if it rises and I don't care if it falls. Our clients pay us to be long when it rises and short when it falls,” he said. Jonathan Unwin, UK head of portfolio management at Mirabaud Wealth Management, warned that the current rise in gold prices may not be sustainable. Unwin told CNBC in an email that gold will likely remain in favor as a relatively uncorrelated asset class as investors weigh high valuations and AI-fueled euphoria in stock markets. But he warned: “Paradoxically, if the correlation between gold and other asset classes increases, then for us and many others the appeal of the precious metal would begin to fade. It's reasonable to expect some profit-taking to occur as the $4,000 mark is reached, so we wouldn't be surprised if we see a decline from current levels before another rally higher.” Neuberger Berman noted how central banks bought more than a thousand tons of gold each year in 2022, 2023 and 2024 – more than double the average pace of the previous decade – with China emerging as the biggest buyer. “Gold's lack of default risk, high liquidity and 'neutral' status among reserves make it attractive for official portfolios, especially after the 2022 Russian sanctions exposed vulnerabilities in dollar-targeted reserves.” McMillan said. On Tuesday, Bridgewater Associates founder Ray Dalio urged investors to “invest about 15% of your portfolio in gold” after comparing today's markets to the 1970s. He added that the precious metal is “the one asset that does very well” when other investments fall.
