Gold is no longer a must-have option; FOF diversified allocation embarks on a path of seeking change

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“A temporary no from me on investing in gold again, unless the volatility of this kind of asset returns to normal.” A fund manager of a public-issuer FOF recently told a reporter from China Securities Journal. In the short term, the role of gold in diversified-asset allocation appears to have changed. “Since the gold price has been moving up and down in sync with equity markets across multiple trading days, we’ve started thinking about the configuration significance of its safe-haven attributes.”

在传统多元资产配置框架中，黄金长期被视为抵御波动、平衡风险的“压舱石”。However, when its price action began to resonate with equity markets, its safe-haven halo faced serious doubt. This is not merely a short-term deviation by an asset; it also reflects that a positioning strategy many FOF fund managers once treated as a rule of thumb—relying on combinations such as “gold + Nasdaq + dividends” to ride through the cycle—is now being shaken. When the old “stabilizer” temporarily fails, professional investors have to think deeply: in a complex market environment, does the true resilience of diversified allocation come from dependence on historical paths, or from continuous judgments about macro changes and dynamic rebalancing among assets?

● By Wei Zhaoyu, a reporter at this newspaper

From a safe-haven product to a risk asset

As the recent geopolitical crisis continues to intensify, gold holders have not enjoyed the benefits of a safe-haven asset. Instead, they’ve gotten an “experience card” that rises and falls in tandem with equity assets. Data from Wind shows that, taking one gold ETF as an example, the fund’s decline over multiple trading days in late March was notable, with its single-day drop on March 23 exceeding 9.5%, far higher than the single-day declines of equity indexes such as the CSI 300 and the SSE/SZSE 300. With the geopolitical situation stuck in a stalemate, although the gold price has slightly recovered recently, it has never managed to recapture prior ground.

Bridgewater has also released research indicating that although gold is often called a store-of-wealth tool, it does not always provide stable protection when market safe-haven sentiment heats up or when various geopolitical crises are encountered.

Zhang Yun, head of FOF investment at E Fund and Prudential Fund (China), said that the gold market has seen tremendous changes recently. While the back-and-forth of expectations for Fed rate cuts moving away could weigh negatively on gold prices, the market saw multiple rounds of aggressive selloffs within the first quarter—showing high asset crowding and problems on the liquidity front, causing the original safe-haven attributes to fail.

“It’s somewhat like the situation in November 1978 when the second oil crisis coincided with heightened expectations for tighter monetary policy. Back then, gold had accumulated a large amount of profit-taking positions over the prior two years, so it ran into concentrated selloffs.” When asked about the current gold market, Zhang Yun said gold is currently in a slow repair phase. After a major selloff, the chip structure has cleared to a certain extent, but risk-return characteristics such as volatility and Sharpe ratio are completely different from those of the past two years. It still needs some time and catalysts to re-enter an upward channel.

Worth noting is that from the perspective of diversified-asset allocation, because gold has historically had weak correlation with equity assets, gold-themed funds have long been a “favorite” for FOF fund managers. In terms of heavy-holding counts, Wind data shows that at the end of 2024, the Hu’an Gold ETF became the fund held by the largest number of FOFs, with 55 FOFs holding the Hu’an Gold ETF. In the first, second, and third quarters of 2025, the Hu’an Gold ETF kept “ranking at the top,” becoming the fund held by the largest number of FOFs. Only by the end of 2025 did this seat make way for the Haitong Fortune-CN Short-Term Bond ETF. However, the number of FOFs heavily holding the Hu’an Gold ETF remains high, and it ranks second.

Many other FOF fund managers have also gone “hard” in allocating to gold assets. As an example at the end of 2025, take Haitong Fortune Select: the fund bought five gold-themed ETFs such as the ICBC Gold ETF. Another example: Guotai Min’an Pension 2040 (three-year) heavily held three gold stock ETFs and one active equity fund themed around gold, silver, and jewelry at the end of 2025. These four funds together make up more than 30% of the net asset value weight of the FOF fund.

The role of diversified allocation is changing

In the short term, gold may need to be re-examined within diversified-asset allocation. In Zhang Yun’s view, the core purpose for multi-asset allocation investors to include gold was originally to provide diversified returns with low correlation and a certain level of defense for stock assets. When gold’s actual performance no longer matches its original functional positioning, she believes it is still necessary to re-assess its asset role, even though she remains optimistic about its allocation value in the medium to long term. “Gold in traditional diversified-asset allocation has been assigned the roles of ‘low correlation’ and ‘safe-haven asset.’ But recently, its correlation with risk assets (such as U.S. stocks) has risen markedly. In safe-haven scenarios, when it resonates and declines together with other assets—even falling more than equity assets—gold has lost its defensive function in the short term.”

“If gold’s safe-haven attributes fail and volatility shows extreme abnormality, it should no longer be treated as a ‘stabilizer’ in a passive holding approach. At this time, configurations should be adjusted actively, other assets with low correlation should be sought as replacements, and investment discipline should be strictly followed.” A FOF fund manager from Beijing disclosed that by the end of March, they had cleared the vast majority of their holdings in gold-themed funds.

What other categories could take on roles that exhibit low correlation with equity assets? Zhang Yun said that assets such as soybean meal are not drawing that much attention currently, but agricultural-asset categories with a relatively better chip structure are worth watching.

He Zhe, FOF investment director at HSBC Jinxin Fund, said that from the perspective of diversified-asset allocation, the team’s ranking of gold is still relatively high. It’s just that the likelihood of setting new highs in the near term isn’t that great. Going forward, the team will continue to monitor gold’s trade crowding level and the degree of price pullbacks to judge the buying timing. “Currently, gold’s implied volatility is still at a relatively high level. The cost-effectiveness of investing in gold will decline over the next period. In the short term, downside risk may be higher than upside risk.”

From the perspective of investment advisory, the short-term replacement strategy for gold seems to offer more choices. Regarding recent actions on gold, the investment advisory team at Yimin Oriental Gold Craft stated that in actual operations, they are conducting more tactical adjustments rather than structurally changing the overall allocation framework. This is mainly based on its strong prior run-up and the team’s expectations for an increase in gold price volatility in the future. At the same time, the team increased allocation to absolute-return strategies, such as CTA strategies and multi-strategy FOF products. These strategies have stronger adaptability under different market conditions and can provide more stable performance during phases with high uncertainty.

Old allocation strategies may face challenges

In fact, the phenomenon of crowding in gold trading has been discussed by the market for some time, and the strengthening of gold’s short-term correlation with equity assets has also attracted attention from many investors. Although last year the gold price still maintained an overall upward trend amid several bouts of sharp volatility and did not trigger too much doubt, this situation has now become explicit, and investors should be alert.

In reality, it’s not just gold. Many FOF fund managers’ long-standing allocation strategies are also facing challenges. Industry insiders point out that for a relatively long period in the past, the combination of “gold + Nasdaq + dividends” has been regarded by many fund managers as a near-unbeatable formula for diversified FOF allocations, believed to be able to continuously deliver steady returns and, in the long run, hard to underperform the market. However, the stability of the excess returns generated by this strategy is being broken.

“After this crisis, multi-asset allocation should ring an alarm bell. In 2026, it is even more necessary to emphasize risk control—especially the fat-tail risk of a decline driven by the resonance of multiple assets, including a period-by-period rise in the U.S. dollar and U.S. Treasury yields, an increase in expectations of tighter liquidity, and declines in multiple assets under resonance. Assets that have previously shown high Sharpe ratios—such as gold and U.S. stocks—will be difficult to maintain at prior levels this year, so you cannot rely too heavily on historical data.” Zhang Yun said.

China Securities Journal learned that as black swan events have occurred frequently and more and more professional investors are thinking more deeply, there is an interest in how to further optimize the robustness of diversified-asset allocation. Some views suggest that only by expanding and diversifying return sources through flexible adjustments via sector rotation and style rotation, and continuously deepening assessments of the macro environment, can investors improve a portfolio’s adaptability.

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