Gold Insights
Gold for an AUD-base Portfolio
A perennial question for Australian investors has been whether to hold in gold in USD or in AUD base. The main concern cited is the potential impact of currency movements, specifically the AUD USD exchange rate, on the performance of gold in an AUD-base portfolio. Fortunately the historical data shows that this fear should not be a major concern for Australian investors as the performance of gold in AUD closely mirrors that of gold in USD over the medium term despite exchange rate fluctuations. This intuitively makes sense as all that is changing is the currency in which you measure performance, not the performance of the underlying asset itself.
The historical correlation, based on daily data since 1 January 1995, between gold in AUD and the AUDUSD rate was -0.38, suggesting that daily currency movements had a weak negative correlation with the price of gold. This is as expected with gold in AUD providing some protection against depreciation of the AUD which can happen during times of market stress. Incidentally, over the same period, the correlation between gold in AUD and in USD is high at 0.73. Comparing returns in AUD and USD across various time periods shows how close the risk and returns are for gold measured in both currencies.
Figure 2: Gold Risk and Return in USD and AUD Similar Across Time Periods
| Gold in US dollars | Returns | Volatility | Risk-adjusted Returns |
| 1-year | 13.1% | 15.0% | 0.87 |
| 5-years (p.a.) | 10.0% | 14.4% | 0.69 |
| 10-years (p.a.) | 5.6% | 14.0% | 0.40 |
| 20-years (p.a.) | 8.3% | 16.8% | 0.50 |
| 25-years (p.a.) | 8.2% | 16.3% | 0.50 |
| Gold in Australian dollars | Returns | Volatility | Risk-adjusted Returns |
| 1-year | 13.2% | 14.6% | 0.90 |
| 5-years (p.a.) | 10.7% | 13.6% | 0.79 |
| 10-years (p.a.) | 8.4% | 14.1% | 0.60 |
| 20-years (p.a.) | 8.9% | 16.0% | 0.55 |
| 25-years (p.a.) | 7.7% | 16.0% | 0.48 |
Source: Bloomberg Finance, L.P., State Street Global Advisors. Data as of 31 December 2023. All performance returns are calculated on an annualised basis. Past performance is not a reliable indicator of future performance.
The result is expected as the value of gold is not driven by or dependent on currency over the medium and long term. This frees up Australian investors to hold gold in the currency which best matches their objectives. For AUD base investors, gold is simply an alternative and largely independent safe haven to the USD.
Given this close relationship between gold in AUD and USD and the limited history of data in AUD, we will supplement our analysis of the impact gold has on multi-asset portfolios with examples using gold quoted in USD. This also has some relevance for Australian investor portfolios which are increasingly incorporating US and global assets.
Read the full whitepaper: Gold For Australian Investors: A Portfolio Diversifier With Staying Power.