Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 450

Benefits of holding gold in Australian dollars

Gold prices have risen to more than USD 1,950 per troy ounce (oz) in early March as the conflict in Ukraine, heightened inflationary concerns, and slowing economic growth combine to reignite demand for the trusted safe haven.

These events have seen a return to inflows for global gold ETFs, with holdings increasing by just over 2% in the first two months of the year (after falling by 5% in 2021). Concurrently, speculators in the gold futures market have more than doubled their net long position (i.e. positions that will profit if the gold price rises).

Performance wise, gold (priced in US dollars) has now outperformed US equities by approximately 20% since the start of the year (data to March 11), seen in the chart below.

US dollar gold price and the S&P 500 price index
YTD performance (%) to 11 March 2022

Source: The Perth Mint, MarketWatch, World Gold Council

The chart highlights that what we’ve seen so far in 2022 is another example of gold providing portfolio protection when it’s needed most.

Local investors have also benefitted from gold’s protective qualities. In Australian dollar terms, the YTD outperformance of gold relative to the local equity market is closer to 13%, with gold up by almost 8%.

The slight ‘underperformance’ of the Australian gold price compared to its US equivalent has led some to question whether it matters what currency you buy gold in, should you decide to include it in your portfolio.

Does it matter what currency you buy gold in?

Over the long-run, gold prices in many developed market countries have delivered relatively similar returns, with the difference between the US dollar gold price and the gold price in other currencies often explained by a combination of inflation and interest rate differentials.

The similarities can be seen in the table below which shows the average annual returns for gold across a range of currencies from the year 2000 to the end of February this year.

Average annual returns (%) – gold in various currencies, 2000-2022 YTD

Source: Reuters, Incrementum Monthly Gold Compass – March 2022, data to end February

While long-run returns and the role that gold can play in a portfolio tend to be similar irrespective of the currency we are looking at, there are differences in shorter term price movements, volatility and drawdowns.

The following table, looking at the same currencies, highlight these differences.

Best year, worst year, maximum drawdown and volatility – gold in multiple currencies, 2000-2021

Source: The Perth Mint, World Gold Council. Based on calendar year data

Currency impacts magnify protective benefit of gold for Australian investors

When buying gold unhedged in Australian dollars, investors are taking on an additional source of risk and return. They are not only exposed to movements in the US dollar gold price, but also movements in the AUD/USD exchange rate.

Rather than proving problematic, this additional source of risk and return has historically been beneficial for Australian investors looking to hedge equity market risk with a gold allocation, because the Australian dollar typically falls against the US dollar when equity markets fall.

Indeed, since the turn of the century, the Australian dollar has fallen against the US dollar 60% of the time the local equity market has seen a monthly decline. The average decline for the Australian dollar in the months the currency fell alongside the equity market was 3.5%.

In the 40% of times the Australian dollar rose against the US dollar while local equity markets sold off (as it has in 2022 so far), its average increase was just 2.6%.

Over this entire period, this exchange currency effect has been worth almost 1.2% in terms of the enhanced portfolio protection Australian investors would have received in the months that equities declined, assuming they held a gold position unhedged in Australian dollars.

Gold price moves when Australian equities fall, 2000 to 2021

 

Source: The Perth Mint, World Gold Council, RBA, MarketWatch

Home bias a factor

Most Australians have a home bias when it comes to their portfolio and total pool of assets, a fact underlined in a 2019 article published by Vanguard stating: “The level of equity home bias in Australian portfolios is among the highest in the world.

This is entirely natural, given the largest asset most of us own, the family home, is priced in Australian dollars. Additionally, people earn most, if not all, of their income in local dollars, and it is a similar story with the cash and term deposits they hold.

Lastly, as it relates to the equity market and Australian investors specifically, there are understandable reasons investors prefer to be ‘overweight’ the ASX (hello franking credits), reinforcing the home bias.

Given this reality, the logic of holding gold unhedged in Australian dollars is arguably even more compelling.

Should the Australian dollar rise, then most of the assets you own will benefit from this currency appreciation, even if the unhedged gold position you hold underperforms a hedged equivalent.

But if the Australian dollar weakens, then the unhedged gold position will provide additional protection, not only within a portfolio of financial assets, but across the broader pool of real estate, cash and superannuation that most Australians are looking to grow and protect.

 

Jordan Eliseo is Manager of Listed Products and Investment Research at The Perth Mint, a sponsor of Firstlinks. The information in this article is general information only and should not be taken as constituting professional advice from The Perth Mint. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances.

For more articles and papers from The Perth Mint, click here.

 

RELATED ARTICLES

Trump's US dollar assault is fuelling CBA's rise

Will 2025 be another banner year for gold?

Can the battling Aussie dollar find a friend?

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.