Should you add gold to your portfolio when there is market volatility?

“Gold has long been viewed as a potential hedge during periods of uncertainty, particularly when markets are volatile or economic conditions feel unsettled. With geopolitical uncertainty in the Middle East causing market volatility in the first half of 2026, some long-term investors may be wondering if gold can play a role in diversifying their portfolio.

Adding gold to your portfolio is always a personal choice based on your investment goals, time horizon and risk tolerance. That said, it’s important to understand what drives gold prices and how investors typically gain exposure, which can help inform your decision.

What impacts the price of gold?

Between January 2025 and January 2026, gold doubled in price. Since then, the price has pulled back, but its 200-day moving average in May 2026 was still around $4,400 per ounce, up from where it was a year ago. While the stock market hit new records in June, geopolitical uncertainty and inflation concerns may still make gold an attractive asset for a portfolio.

“Economic and geopolitical uncertainty also tend to be positive drivers for gold, due to its safe-haven status and ability to remain a reliable store of value,” wrote J.P. Morgan’s Global Research team in December 2025. “It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress.” 

Gold is frequently described as a hedge against volatility and inflation because it has historically behaved differently from stocks and bonds during certain periods of market stress. When equity markets experience sharp declines, investors may turn to gold in an effort to preserve value or reduce overall portfolio risk.

This perception is rooted in gold’s long history as a store of value and its limited supply. Gold’s value is not directly tied to stocks, bonds or real estate, which can make it appealing when investors feel uncertain about the broader economic outlook.

However, gold does not always rise during periods of market volatility or economic recession. Its effectiveness as a hedge can vary depending on the source of volatility, interest rate conditions and investor behavior at the time.

Here’s a closer look at the key factors that can influence gold prices, often simultaneously.

Interest rates, inflation and currency movements

Gold does not generate income, so rising interest rates can increase gold’s opportunity cost by making yield-bearing assets more attractive – particularly when real rates (adjusted for inflation) are positive or moving higher. However, when real rates fall, the dollar’s value weakens, or economic and geopolitical uncertainty spikes, investors may seek a store of value outside of the financial system. Central bank demand, momentum and sentiment also play a role, meaning gold doesn’t always move in lockstep with rates or inflation alone. 

Geopolitical events and trade policy

Early 2026 began with intensified geopolitical strain, including the conflict in Iran in late February and renewed uncertainty around trade policy that began in 2025. In fact, recent academic research from a Swedish university found that 2025 recorded the highest number of conflicts between countries since World War II and one of the highest levels of conflict-related fatalities in decades. 

When risks like these arise and the outlook becomes harder to price, investors often look to strengthen their diversification – adding “safe-haven” exposures such as gold for its liquidity and potential role as a store of value during volatile periods.

Central bank demand

Under the Bretton Woods system, sometimes loosely described as a “modern gold standard,” foreign central banks could exchange U.S. dollars for gold at a fixed price – an arrangement that depended on the U.S. holding enough gold to keep that pledge credible. As dollar claims grew relative to available gold, the system became harder to sustain, and the U.S. suspended official dollar-to-gold convertibility in 1971. 

Today, central banks hold roughly 20% of their foreign exchange reserves in gold. Buying by central banks surged in 2025 and is expected to remain strong in 2026, in part because gold can diversify reserves, reduce reliance on any single currency and provide a highly liquid asset with limited counterparty risk during periods of geopolitical stress.

Where could the price of gold go this year?

With gold prices rising above $5,000 per ounce in January and pulling back to around $4,100 in mid-June, our strategists’ outlook is now for gold to reach a range of $5,500 to $5,800 by year’s end. Gold’s price has been driven largely by central banks, which view the metal as a way to diversify their reserves away from the dollar, as well as retail investors who may have been buying the metal to hedge their portfolios against geopolitical uncertainty and inflation concerns.

The bottom line

Gold has drawn increased attention amid tariff discussions, geopolitical uncertainty, sticky inflation and market volatility since early 2025. While it is often viewed as a hedge against risk, the price of gold can vary depending on economic conditions and investor behavior.

Investors considering gold may want to weigh its potential benefits against its limitations and consider how it fits within a diversified portfolio. A thoughtful, long-term approach can help determine whether gold aligns with your individual financial goals.”