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Of the many short-hands used in investing culture, perhaps few inspire as much excitement and hype as FAANG and the Magnificent Seven. These two popular terms refer to clusters of companies known for dominating the market, notably in tech, AI and related sectors.  

While they may share clear similarities, these two groups represent different moments in the evolution of the market. Specifically, as technology stocks rose into prominence as major drivers of the market, investor focus shifted from FAANG to the Magnificent Seven in tandem.  

While FAANG (which came earlier) captured the rise of internet platforms, digital advertising and streaming services, the Magnificent Seven reflects a more contemporary mix of artificial intelligence, cloud computing, electric vehicles and platform ecosystems.  

Understanding what FAANG and the Magnificent Seven represent can help readers understand how market leadership has evolved over time and why a handful of companies can have such a large influence on global indices. 

Key Points 

• FAANG captured the rise of internet platforms and digital services, while the Magnificent Seven reflects a newer era driven by AI, cloud computing, and advanced hardware. 
• The Magnificent Seven now holds a much larger share of the S&P 500, showing how market leadership has shifted toward companies shaping deeper technological infrastructure. 
• This shift has increased index concentration, meaning a handful of mega-cap stocks now influence broader market movements far more than in the FAANG era. 

Understanding FAANG Stocks and Their Rise 

The FAANG acronym refers to Facebook (now Meta Platforms), Amazon, Apple, Netflix and Alphabet, the parent company of Google. It emerged during a period when these firms were at the forefront of digital transformation, marked by the rise of social media, streaming and ever more digital lifestyles.   

The term began as “FANG”, popularised by market commentator Jim Cramer to describe the runaway success of Facebook, Amazon, Netflix and Google in 2013. Later, in 2017, Apple was added to the group, making up the second “A” ^[1].  

The updated acronym, FAANG, quickly caught on among analysts and retail investors, becoming shorthand for the most powerful technology stocks that were exhibiting spectacular growth in the market. 

Let’s examine each of these five stocks in turn. 

Facebook (now Meta Platforms) 

The rise of FAANG was closely linked to a dramatic shift in how people used technology. Social media took centre stage as Facebook became the primary platform for online interaction, emerging as a clear winner that gobbled up market share and users from earlier platforms such as MySpace and Friendster.  

Facebook offered a more full-featured social media platform, empowering users with the ability to integrate photos, messaging, groups and a personalised news feed, creating a level of engagement those earlier platforms could not match. As more people brought their social lives online, Facebook became a daily habit for millions, anchoring itself at the heart of the digital experience and setting the tone for the broader social media landscape. 

Amazon 

Amazon – perhaps the most well-known survivor of the 2000’s dot-com bubble collapse – emerged from the rubble to reshape shopping habits by accelerating the adoption of e-commerce and efficient home delivery.  

In essence, the company succeeded by pivoting from selling books to solving the logistical challenges that stood in the way of speedy home delivery, famously creating “same-day delivery” – a standard that could only be dreamed of previously.  

Apple 

Apple’s rise during the FAANG era stemmed from its ability to shape not only consumer behaviour but the direction of the entire technology ecosystem. The launch of the first iPhone in 2007 transformed the company from a computer manufacturer into the architect of the modern mobile world.  

By tightly integrating hardware, software and services, Apple created an ecosystem that encouraged loyalty and made it difficult for competitors to replicate the overall experience. Innovations such as the App Store, iCloud and Apple Music expanded the company’s reach far beyond devices, turning day-to-day digital interactions into recurring revenue streams.  

This blend of premium hardware and fast-growing services positioned Apple as a central pillar of the tech economy, influencing everything from app development to global supply chains. 

Netflix 

Netflix, for its part, became one of the defining disruptors of the FAANG era by spearheading the transition from physical media to online entertainment. What began as a DVD-by-post business gradually evolved into a platform that changed how people consumed film and television.  

Most notably, Netflix fostered the rise of binge watching by dropping entire seasons of television shows, instead of releasing episodes on a weekly schedule. This helped the brand cement its place in popular culture, generating valuable word-of-mouth.  

By investing heavily in streaming technology and later in original productions, Netflix broke the traditional dominance of broadcast networks and cable providers. Its hit series and films attracted a global subscriber base, proving that viewers were ready to move away from scheduled programming towards on-demand content.  

This shift not only transformed entertainment habits but forced the entire media industry to rethink distribution, rights management and production strategies, with many legacy companies scrambling to catch up. 

Google (Alphabet) 

Alphabet’s influence grew out of its position as the backbone of online information. Through Google Search, the company became the primary gateway to the internet, shaping the way billions of people accessed knowledge, news and services. Its advertising platform, powered by detailed data insights and sophisticated algorithms, allowed businesses of all sizes to reach targeted audiences with unprecedented precision, cementing Google’s dominance in the digital advertising market.  

At the same time, the Android operating system enabled Alphabet to establish a vast foothold in the global smartphone market, particularly in regions where lower-cost devices were essential for widespread adoption. This combination of search, advertising and mobile technology made Alphabet not just a dominant tech company, but an essential infrastructure provider for the digital age. 

The rise of FAANG 

Each of these five companies achieved impressive growth in their own right. But what truly set FAANG stocks apart was the speed at which they captured market share and embedded themselves in everyday life.  

Each company benefited from the network effects of the internet era, where user growth reinforced product relevance and revenue expansion. As their profits grew, so did their market capitalisation, making them some of the most influential members of indices such as the S&P 500.  

At one point, FAANG stocks together accounted for a significant share of the index, and their performance often shaped broader market sentiment. When these companies delivered strong results, markets tended to rally. When they faltered, markets frequently cooled. 

The FAANG era is often associated with the 2010s, a decade defined by mobile technology, platform monetisation and the explosive rise of online advertising. The companies’ ability to grow revenue at a rapid pace, coupled with their dominance in their respective industries, established them as the core engines of American technology leadership during that period. 

Understanding Magnificent Seven Stocks and Their Rise 

While FAANG defined one era, the Magnificent Seven delineated another. This newer group includes Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla. The term gained traction among analysts who wanted to capture the influence of a broader set of companies leading the market.  

Unlike FAANG, which concentrated heavily on internet platforms and advertising, the Magnificent Seven reflects a more diverse technological frontier, driven by artificial intelligence, cloud infrastructure, electric vehicles and advanced semiconductors.  

This broader mix captures the reality that modern tech leadership is no longer defined by online platforms alone, but by companies building the underlying hardware, infrastructure and energy systems that power the digital world. It also shows how innovation has shifted from consumer apps to deeper, more foundational technologies that shape entire industries. 

Microsoft, Amazon and Alphabet – The power of the cloud  

The inclusion of Microsoft marks one of the most important differences between the new and old groupings. Microsoft had long been a giant in enterprise software, but its growth accelerated significantly as cloud computing became central to corporate operations.  

The success of cloud computing service Azure transformed the company from a traditional software provider into one of the world’s most influential cloud infrastructure leaders, placing it at the heart of digital transformation across industries.  

This shift mattered because it brought a different kind of technological power into the mix: rather than relying on advertising or consumer platforms, Microsoft’s dominance came from supplying the digital foundations that governments, businesses and developers rely on every day. Its presence in the Magnificent Seven highlights how market leadership has expanded beyond consumer tech into the deeper layers of enterprise infrastructure. 

Amazon and Alphabet also benefited from this shift through their extensive cloud platforms, making cloud infrastructure one of the defining technologies of the modern era. Amazon Web Services became the engine behind much of the internet, powering everything from start-ups to global enterprises and generating a significant share of Amazon’s overall profits.  

Alphabet’s Google Cloud, while smaller, became a crucial player in areas such as data analytics, artificial intelligence tools and enterprise services, reinforcing the company’s role beyond search and advertising. Together with these cloud businesses helped move the conversation away from consumer-facing apps toward the backbone technologies that enable digital innovation. 

Meta Platforms – The future is social  

Meta Platforms remained part of the Magnificent Seven due to its scale and continued influence across social media and advertising, despite the challenges of competition and regulatory scrutiny. Its vast user base gave it a degree of global reach unmatched by most companies, and its ability to shape online communication kept it central to the digital economy.  

Over the years, Meta refined its platforms to keep users engaged for longer and advertisers returning, turning Facebook, Instagram and WhatsApp into essential digital hubs for billions of people. Furthermore, Meta’s investments in new technologies – including virtual and augmented reality – signalled its intention to play a role in the next stage of the internet’s evolution.  

These long-term bets showed that Meta is not content to remain merely a social media company, but aims to influence how people might interact, work and socialise in future digital environments. This combination of scale, structural influence and ongoing innovation is what secures Meta’s place within the Magnificent Seven, keeping it aligned with the companies driving the next wave of technological change. 

Nvidia and Tesla – Completing the Magnificent Seven  

Two companies that transformed the technology narrative appear only in the Magnificent Seven: Nvidia and Tesla. Nvidia grew from a graphics card producer to a major supplier of chips used for artificial intelligence and high-performance computing. Its hardware plays a significant role in training large AI models and supporting data-intensive applications. According to publicly available market data, Nvidia’s valuation increased substantially in recent years, reflecting heightened demand for AI-related hardware ^[2].  

Tesla, meanwhile, played a critical role in bringing electric vehicles into the mainstream. What began as a niche automaker producing high-priced performance cars quickly evolved into a company capable of reshaping the entire automotive landscape. Its heavy investment in battery technology allowed Tesla to push the limits of range and efficiency, helping convince consumers that electric vehicles could be both practical and desirable.  

At the same time, its work on autonomous-driving software positioned the company at the frontier of automotive innovation, blurring the line between car manufacturing and advanced computing. Tesla’s ambition extended beyond vehicles, with its energy-storage products and solar operations framing the company as a broader clean-energy ecosystem rather than a traditional automaker.  

This strategic positioning placed Tesla at the centre of a technological shift focused on sustainability, electrification and software-driven mobility. Public market data shows that Tesla’s valuation increased significantly over the years, influenced by investor expectations around electric-vehicle development and related technologies. These valuations reflect market sentiment at different points in time rather than guarantees of future performance ^[3]. 

How the Magnificent Seven Took Over 

Collectively, the Magnificent Seven hold an even larger share of the S&P 500 than the FAANG stocks did in their prime. FAANG stocks made up close to 20% of the S&P 500 as at late-2025; meanwhile the Magnificent Seven was estimated to take up 36.19% of the S&P 500 in October 2025 ^[4,5].  

The transition from FAANG to the Magnificent Seven did not happen overnight. Instead, it unfolded gradually as new technologies emerged and investor attention shifted.  

During the past several years, artificial intelligence became one of the most significant drivers of both corporate strategy and market sentiment. As detailed above, Nvidia stood out as a central player in this trend, supplying the specialised chips that power AI models (essentially, selling spades during a gold rush). This new source of demand propelled Nvidia into the same league as the other mega-caps, reflecting how vital AI had become to global technological competition. 

At the same time, cloud computing continued its relentless expansion. Companies increasingly relied on cloud-based systems for storage, cybersecurity, analytics and digital operations. This bolstered the position of Microsoft and Amazon, whose cloud divisions formed the backbone of many corporate IT strategies. Their success showed that infrastructure and enterprise services were becoming just as important as consumer-facing platforms. 

The rise of electric vehicles added another dimension to the shift in market leadership. Tesla’s technological approach to batteries, manufacturing and software opened a new chapter in transport innovation. Investors viewed the company not only as a car manufacturer but also as a major force in the push towards clean energy and automation. This differed significantly from the earlier FAANG landscape, which focused more on digital platforms than physical technologies. 

As these trends gathered momentum, it became clear that the original FAANG label no longer captured the breadth of modern tech-driven growth. The Magnificent Seven emerged as a more accurate reflection of the companies shaping the next phase of technological progress. Their combined weighting in major US indices grew so large that they often accounted for a notable portion of total market gains. When the Magnificent Seven performed strongly, markets tended to rise with them. When they cooled, their sheer size meant that broader indices often softened as well. 

This shift highlights how market leadership evolves in response to new ideas, new technologies and new business models. Whereas the FAANG era was defined by digital platforms, the Magnificent Seven era is characterised by AI, cloud computing, electric vehicles and integrated ecosystems that reshape how individuals and businesses interact with technology. 

Key Similarities and Differences Between FAANG and The Magnificent Seven 

Feature	FAANG	Magnificent Seven
Companies included	Meta (Facebook), Amazon, Apple, Netflix, Alphabet (Google)	Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, Tesla
Technological focus	Internet platforms, digital advertising, streaming, e-commerce	Artificial intelligence, cloud infrastructure, electric vehicles, social platforms, hardware ecosystems
Era of prominence	Mid-2010s to late 2010s	Early 2020s onwards
Influence on major indices	Significant but centred on platform businesses	Larger overall influence, driven by broader technological themes
Risk factors	Regulatory pressure, slowing user growth, competition in digital platforms	High valuations, supply-chain exposure, hardware complexity, concentration risk
Primary growth drivers	Platform monetisation, online advertising, subscription content	AI advancements, cloud services, EV adoption, semiconductor innovation

What the Shift Means for Investors and Traders 

The shift from FAANG to the Magnificent Seven reflects broader changes in the technology landscape and how market participants have responded to evolving themes over time. 

For market observers, one notable point is that the definition of “big tech” today is broader and more diverse than it was a decade ago. Many of the companies leading the market now operate in fields that extend far beyond their original sectors, such as social media and online platforms. Artificial intelligence, electric mobility and cloud infrastructure are all shaping the next chapter of growth. 

Increasing Index Dominance Brings Risk 

At the same time, the increasing dominance of a small set of companies means that risks can become concentrated in ways many investors may fully appreciate. When just a handful of firms make up a substantial portion of a broad index such as the S&P 500, their share-price movements exert far more influence on the overall index than the hundreds of smaller companies sitting alongside them.  

This dynamic means that some market participants tracking broad indices may be more exposed to these large companies than they realise. 

Related Read: Are the Mag 7 Making the Market Fragile? 

Distortion of Portfolio Behaviour  

This concentration can distort portfolio behaviour. A strong rally among the Magnificent Seven can push an index higher even when other companies are flat or falling, which may give the impression of broad market strength even if underlying performance is uneven.  

Likewise, if even one or two of these dominant firms stumble (whether due to weaker earnings, regulatory issues or a change in market sentiment) the impact can ripple disproportionately through the index.  

The result is that portfolios tied to these indices can experience sharp swings that do not necessarily reflect the wider health of the market or economy. 

Conclusion: What This All Means for Traders 

Some traders monitor these groupings as indicators of broader market sentiment. Movements in large-cap technology stocks are sometimes viewed by market participants as reflecting shifts in confidence toward certain sectors or themes. These observations vary among traders and do not predict market direction. Many traders pay particular attention to earnings reports for technology leaders, as their results can influence both volatility and direction in the broader market. 

On a broader level, the shift from FAANG to the Magnificent Seven illustrates how technological transitions have influenced different phases of market leadership. The companies that dominated one era may not necessarily dominate the next, and periods of disruption can create opportunities for firms that bring new ideas to the table.  

From an educational perspective, concentration in a small set of companies can lead to narrower exposure to market movements. Some market participants consider a broader mix of sectors or themes when analysing diversification concepts, although approaches vary widely depending on individual objectives and risk tolerance. 

When investors discuss the ups and downs of the economy, two forces dominate the conversation: inflation and recession. Understanding these opposing forces is key to learning how they affect different asset classes – from stocks and bonds to commodities and currencies. 

Each asset class plays a distinct role in the economy, so their performance shifts differently during periods of inflation and recession. These differences often correspond with shifts observed in broader market behavior.  

During inflation, markets often reflect increased caution as participants reassess pricing and value. In contrast, recessions typically bring lower confidence and falling asset prices, prompting investors to prioritise capital protection and seek stability over growth. 

Key Points 

• Inflation and recession affect equities, bonds, commodities, and currencies in different ways, shifting investor focus between growth, income, and capital preservation. 

• During inflation, real returns are squeezed, pushing investors towards assets that can better keep pace with rising prices, such as certain equity sectors, commodities, and inflation-linked bonds. 

• In recessions, falling growth and rising risk aversion usually benefit safe-haven assets like government bonds, gold, and defensive currencies, while cyclical sectors and riskier debt often come under pressure. 

Understanding the Link Between Inflation, Recession, and Asset Performance 

Markets move based on supply and demand, which is in turn influenced by expectations. Both inflation and recession influence monetary policy, investor confidence, and the perceived value of different assets. 

When inflation rises, central banks typically raise interest rates to cool demand. This makes borrowing costlier, often slowing investment and consumer spending. During these periods, investors tend to focus on assets that can preserve value or keep pace with rising prices. Some examples include defensive stocks, bonds, real estate, and safe-haven assets such as gold.  

During recessions, policymakers tend to cut interest rates and expand fiscal spending to stimulate economic growth. This causes borrowing to become less expensive, but bond yields also come down at the same time – this combination sometimes coincide with increased interest in certain risk assets, although market behaviour varies widely.  

Yet, because negative sentiment is prevalent during recession, investors are driven to seek capital preservation. To do so, market sentiment often becomes more risk-averse, and attention may shift toward assets historically associated with income or stability, depending on conditions. 

The key takeaway here is that investor sentiment and risk appetite changes as the economy cycles through inflation and recession, impacting different asset classes in various ways as the cycle progresses.  

Related Reads: Higher for Longer What the Fed’s Cautious Stance Means for Markets in 2025 and Beyond 

Equities (Stocks) 

Stocks represent ownership in companies and are often seen as a barometer of economic health. Their prices reflect expectations about corporate earnings, consumer spending, and future growth prospects.  

Due to their popularity, equities sit at the centre of most investment portfolios. This means that changes in inflation and recession can have an outsized impact on market sentiment. Inflation affects company costs, pricing power, and valuations, while recessions reshape demand, profitability, and investor appetite for risk.  

Understanding how these forces interact is key to interpreting how the stock market behaves across different stages of the economic cycle. 

Equities During Inflationary Periods 

The impact of inflation on stocks can vary according to how serious it is. Moderate inflation often supports earnings growth, as prices and revenue rise. This is because during moderate inflation, prices remain generally acceptable to consumers, supporting sales and revenue growth.  

However, when inflation becomes too high, prices increase too much for consumers, who respond by reducing consumption, putting pressure on revenue. At the same time, corporates face various cost increases – wages, materials, financing, and etc. All these result in lower profit margins and poorer earnings reports, which prompt investors to sell their stocks, causing a drop in stock valuations.  

But as explained in this section’s opening, not all equities see reduced demand during high inflation. Historically, certain sectors hold up better than others. 

Sectors that hold up well during high inflation  

Energy and commodities: Rising prices in oil, gas, and raw materials often boost revenues for companies in these sectors, making them standout performers during inflationary periods. As these services are essential to everyday life, producers can pass price increases directly to consumers without losing demand.  

Energy firms have historically posted stronger earnings during periods of rising fuel prices. These sectors have historically shown periods of stronger performance during certain past inflationary phases, although outcomes vary depending on broader market conditions. 

Consumer staples: Demand for essentials like food, beverages, and toiletries remains steady even when living costs rise, providing support for this category of stocks. These companies often have strong brand loyalty and pricing power, allowing them to pass cost increases onto consumers more easily.  

As a result, their earnings tend to be more resilient during inflationary periods, offering investors a degree of stability when market volatility increases. 

Financials: Banks and other financial institutions can benefit from higher interest rates, as rising rates are reflected in new loans and variable-rate products. This typically boosts revenue by widening the net interest margin – the difference between what banks earn on loans and pay on deposits.  

However, the benefit is conditional on credit quality: if inflation persists too long and economic growth weakens, loan defaults can climb and offset these gains. Well-capitalised banks with diverse lending portfolios tend to manage this balance best during inflationary cycles. 

Sectors that falter during high inflation 

Meanwhile, sectors that rely heavily on discretionary spending or cheap credit (such as technology or luxury goods) tend to underperform when inflation surges.  

Tech or growth stocks: Tech stocks, growth stocks or stocks that rely on cheap credit to continue growing face downward pressure because borrowing becomes more expensive, forcing companies to pay higher interest, which can impact profitability and company outlook.  

Discretionary spending: As for stocks that depend on discretionary spending (think coffee chains, restaurants, high-end consumer items), high inflation causes consumers to spend more on essentials, leaving less money for dining out, luxury goods or other non-essential spending. This causes falling revenue and poorer outlook, leading to declines in stock prices. 

Equities during recessions 

Recessions are characterised by slowing economic activity, weaker demand, and falling confidence. As consumers cut back on spending and businesses reduce investment, corporate earnings shrink. This drop in profitability often leads to lower stock valuations, as investors anticipate tougher conditions ahead. Market sentiment becomes cautious, trading volumes decline, and investors start to prioritise capital preservation over growth. 

However, not all sectors suffer equally. Just as some stocks hold up better during inflation, certain parts of the market show greater resilience when economic growth stalls. 

Related Reads: What Assets Can You Trade During a Recession? 

Sectors that hold up well during recessions 

Defensive sectors: Industries such as healthcare, utilities, and consumer staples are often more stable during recessions because they provide goods and services people continue to need regardless of economic conditions.  

Utility companies supply electricity, water, and gas – essential services with consistent demand – while healthcare firms benefit from ongoing medical needs and pharmaceutical consumption. Consumer staples companies, meanwhile, maintain steady revenue from everyday necessities like food and cleaning products. These characteristics have historically been associated with relatively more stable outcomes in some past downturns, although market conditions can differ significantly. 

Telecommunications: Another area that tends to hold up well is telecommunications. People continue to rely on internet and mobile services even during economic downturns, keeping revenue streams relatively stable. Many telecom firms generate stable cash flows and may pay dividends, which has historically attracted attention during some periods of economic uncertainty. 

Sectors that struggle during recessions 

Cyclical sectors: Industries that depend on consumer confidence and discretionary spending (manufacturing, travel, and retail, for example) are typically hit hardest during a recession. As households tighten budgets, big-ticket purchases like cars, furniture, and holidays are postponed. This leads to reduced sales and weaker earnings, prompting investors to avoid these stocks until clear signs of recovery appear. 

Financials and real estate: Although banks can sometimes benefit from lower interest rates, recessions often bring rising loan defaults and tighter credit conditions. Borrowers may struggle to repay loans, increasing banks’ risk exposure and reducing profitability. Real estate companies can also feel the impact, as demand for new housing or commercial space falls and property values soften. 

Technology and growth stocks: Tech and growth-oriented companies frequently experience sharper downturns because their valuations are based on future earnings potential. When uncertainty rises and interest rates fall to near zero, investors still tend to rotate away from riskier, high-growth names into more stable or dividend-paying stocks. This shift has historically coincided with notable declines in share prices for these sectors during prolonged recessions. 

Bonds (Fixed Income) 

Bonds represent loans made by investors to governments or corporations in exchange for regular interest payments and the return of principal at maturity. They’re widely used for income generation and portfolio stability. Because bond prices move inversely to interest rates, their performance is closely tied to monetary policy and inflation trends. 

Inflation and recession affect bonds in opposing ways. Rising inflation tends to erode the value of fixed payments, while recessions – usually accompanied by falling interest rates – can push bond prices higher. Understanding these dynamics helps readers interpret how markets may behave across different conditions. 

Bonds during inflationary periods 

When inflation rises, the purchasing power of future interest payments declines. Investors demand higher yields to compensate for this loss, which pushes existing bond prices down. Central banks often respond by raising interest rates to contain inflation, further reducing the value of previously issued bonds with lower coupons. 

However, not all bonds are affected equally. The degree of inflation and the issuer’s credit quality play major roles in performance. 

Types of bonds that struggle during high inflation 

Fixed-rate government and corporate bonds: Traditional fixed-rate bonds are among the most vulnerable during inflationary periods. As prices rise, the real (inflation-adjusted) return from their fixed payments diminishes. This can lead to capital losses for investors holding long-duration bonds, as markets demand higher yields to offset the inflation risk. 

Long-term bonds: Bonds with longer maturities tend to fall more sharply in value when inflation expectations rise. Their longer payment schedules make them more sensitive to changing interest rates, as the fixed income they provide becomes less attractive relative to newer, higher-yielding issues. 

Bonds that hold up better during high inflation 

Inflation-linked bonds: Instruments such as US Treasury Inflation-Protected Securities (TIPS) or UK index-linked gilts adjust both their principal and interest payments in line with inflation. This feature helps preserve real returns, making them a popular hedge against rising prices. 

Short-term bonds: Shorter-dated bonds are less sensitive to interest rate changes and inflation expectations. Because they mature sooner, investors can reinvest proceeds at higher rates relatively quickly. This flexibility can make them less sensitive to sustained inflation. 

Bonds during recessions 

Recessions usually lead to lower growth and reduced inflationary pressure. Central banks respond by cutting interest rates to stimulate the economy. As rates fall, existing bonds with higher coupons become more attractive, pushing their prices higher. 

Bonds that perform well during recessions 

Government bonds: Sovereign bonds, particularly those from stable economies such as US Treasuries or UK gilts, are often viewed as safe havens. Investors flock to them for security and capital preservation, driving yields down and prices up. These assets have historically attracted interest during certain downturns due to their perceived stability. 

High-quality corporate bonds: Well-rated companies with strong balance sheets continue to service their debt through recessions. Their bonds typically maintain value and can provide a steady source of income, offering a middle ground between safety and yield. 

Bonds that underperform during recessions 

High-yield or “junk” bonds: These are issued by companies with weaker credit ratings. In exchange for taking on greater risk high-yield bonds typically offer higher coupon rates to compensate for higher credit risk. However, during recessions, default risk rises as earnings fall and refinancing becomes harder. As a result, their prices often decline sharply, reflecting investor caution. 

Emerging market debt: Bonds issued by developing economies can also suffer when global growth slows, as capital tends to flow back to safer developed markets. Currency depreciation in these regions can further erode returns for foreign investors. 

Commodities 

Commodities are physical goods such as oil, gold, metals, and agricultural products. They are often seen as a barometer of global economic health because their prices respond directly to supply, demand, and inflation trends. Unlike financial assets, commodities are tangible, and their value typically rises with production costs and inflation. 

Because of this link, commodities tend to perform differently across economic cycles, rallying during inflationary booms and weakening when recessions dampen demand. 

Commodities during inflationary periods 

Inflation and commodities often move in tandem. As the cost of raw materials and energy rises, it feeds directly into consumer prices, reinforcing inflationary pressures. For investors, this makes commodities an asset class that has historically shown strength in some inflationary environments. 

Commodities that perform well during high inflation 

Energy: Oil and natural gas prices often surge during inflationary periods, particularly when supply constraints coincide with strong demand. Energy companies may experience revenue increases when prices rise, boosting their profits and, by extension, their stock valuations.  

Gold: Gold is often viewed as a traditional asset that has retained value during certain inflationary or uncertain periods. It retains intrinsic value and is not tied to any currency, which makes it attractive when paper money loses purchasing power. Gold is often viewed as a potential store-of-value during certain periods of uncertainty, but its performance can vary across market cycles. 

Industrial metals: Metals like copper, aluminium, and nickel tend to rise when inflation is driven by strong manufacturing demand. They’re essential for construction, infrastructure, and technology production, which ties their prices closely to global growth expectations. 

Agricultural goods: Another essential commodity, agricultural goods tend to hold steady during high inflation, as consumers need to continue buying such goods, even if prices increase.  

Commodities that struggle during high inflation 

While there are classes of commodities that can do well during inflation, it’s important to understand that commodities on the whole are swayed by supply and demand.  

If inflation becomes extreme, which introduces a high degree of uncertainty, demand for commodities can slow down as companies and consumers cut back.  

Commodities during recessions 

During recessions, economic activity slows, reducing demand for raw materials and energy. Manufacturing, construction, and trade all contract, pushing commodity prices lower. However, not all commodities decline equally – some retain value as investors seek safety. 

Commodities that hold up well during recessions 

Gold: Once again, gold is commonly viewed as a potential safe-haven asset, though its performance can differ depending on market conditions. During recessions or financial stress, investors often shift funds from riskier assets like equities into gold, driving its price higher even as other commodities fall. 

Defensive agricultural goods: Basic food staples, such as wheat and rice, can hold their value better during recessions, as demand for essential goods remains relatively stable. 

Commodities that struggle during recessions 

Energy and industrial metals: Oil, gas, and base metals are typically among the hardest hit. As manufacturing output and transport demand drop, inventories rise and prices fall. For example, during the 2020 pandemic recession, global oil prices temporarily collapsed due to a sharp reduction in travel and industrial activity. 

Forex (Foreign Exchange) 

The foreign exchange market (forex) reflects how currencies trade relative to one another, influenced by monetary policy, trade balances, and investor sentiment. Exchange rates act as a global mirror of economic confidence, reacting quickly to inflation and recession dynamics. 

Forex during inflationary periods 

When inflation rises sharply, a country’s currency often weakens as its purchasing power declines. Investors become wary of holding assets denominated in that currency, especially if they expect further erosion in value. 

Currencies that perform well during inflation 

Currencies of countries tightening policy: When central banks respond to inflation by raising interest rates, their currencies may show periods of strength, although this depends on wider market factors. Higher yields attract foreign investors seeking better returns. For instance, during US rate-hiking cycles, the US dollar often appreciates as global capital flows into dollar-denominated assets. 

Commodity-linked currencies: Nations that export commodities, such as Australia (AUD) and Canada (CAD), can see their currencies rise when global commodity prices surge. Higher export revenues improve trade balances and attract investment inflows. 

Currencies that struggle during inflation 

High-inflation economies: Currencies of countries experiencing persistently high inflation (such as Turkey or Argentina in recent years) often depreciate rapidly. Investors lose confidence, leading to capital outflows and further downward pressure on exchange rates. 

Forex during recessions 

During recessions, investor priorities shift from chasing yield to protecting capital. Exchange rates adjust to reflect risk aversion, trade slowdowns, and shifting expectations about monetary policy. 

Currencies that perform well during recessions 

Safe-haven currencies: The US dollar, Japanese yen, and Swiss franc are typically seen as safe havens during global downturns. These currencies often see increased demand during periods of risk aversion. Their stability and liquidity make them attractive when other assets become volatile. 

Reserve currencies: Major global currencies supported by large, stable economies such as the euro and pound sterling can also attract inflows during mild recessions, particularly when investors diversify away from emerging market risk. 

Currencies that struggle during recessions 

Export-dependent currencies: Economies reliant on manufacturing and commodity exports, like South Korea or Brazil, often see their currencies weaken as global demand slows. Lower trade volumes reduce foreign currency inflows, putting pressure on exchange rates. 

Emerging market currencies: Recessions usually drive investors toward safety, leading to capital outflows from emerging markets. This weakens their currencies and raises borrowing costs, compounding economic difficulties. 

Asset Class Performance in Inflation vs Recession 

Asset Class	Inflation	Recession
Equities	Performance can vary — historically, some sectors (e.g., energy, consumer staples) have shown relative resilience, while others (such as technology or discretionary sectors) may face pressure.	Broader equity markets often experience slower performance, while defensive sectors have historically shown relative stability.
Bonds	Bond prices may come under pressure when yields rise. Inflation-linked bonds are designed to help preserve real value	Bond prices may stabilise or improve when interest rates fall, and high-quality bonds may exhibit safe-haven characteristics.
Commodities	Certain commodities, including gold and energy, have historically shown strength in certain conditions during inflationary periods.	Performance can vary — industrial commodities have often softened during some slowdowns, while gold may see increased demand.
Currencies	Currencies of economies with high inflation may weaken; interest rate hikes can provide temporary support.	Safe-haven currencies may strengthen, while currencies linked to exports or global demand may face downward pressure.

Key takeaways 

Inflation and recession influence markets in opposite ways. Inflation brings rising prices and tighter policy, while recessions are marked by slower growth, softer demand, and lower interest rates. 

Equities react differently across cycles. Energy, staples, and financials often hold up during inflation, while growth and discretionary stocks weaken. In recessions, defensive sectors such as healthcare, utilities, and staples tend to show more stability. 

Bonds weaken during inflation as yields rise, but they typically strengthen in recessions when central banks cut rates. Inflation-linked and short-term bonds offer protection during high inflation, while government and high-grade corporate bonds lead during downturns. 

Commodities often gain when inflation accelerates, especially energy, metals, and gold. In recessions, demand for industrial commodities falls, but gold frequently rises as a safe-haven asset. 

Currencies shift with interest rates and risk appetite. Inflation can support currencies tied to rate hikes or commodity exports, while high-inflation economies often see depreciation. In recessions, safe-haven currencies such as the US dollar, yen, and Swiss franc typically strengthen. 

Overall, investor priorities change with the cycle—preserving purchasing power during inflation and protecting capital during recessions. Understanding these dynamics helps investors interpret market behaviour more clearly and navigate each stage of the economic cycle with greater confidence. 

Frequently Asked Questions 

1. Which asset class performs best during inflation? 

Commodities, especially gold and energy, have historically tended to perform well during inflationary periods. Their prices usually rise alongside the cost of goods and raw materials, helping investors preserve real purchasing power. Gold is particularly valued for its role as a store of wealth when paper currencies weaken, while energy prices often climb as production and transport costs increase.  

Inflation-linked bonds, such as TIPS or index-linked gilts, have historically adjusted payouts with inflation, which can help preserve real value. 

2. What happens to bonds when inflation rises? 

Rising inflation reduces the real value of a bond’s fixed payments, leading investors to demand higher yields to compensate for lost purchasing power. This can push existing bond prices down, especially for long-term government or corporate bonds. Central banks often raise interest rates to combat inflation, reinforcing this effect.  

Inflation-linked bonds are less affected because their principal and interest payments move in step with the inflation rate. Watching the yield curve can also offer historical insights – when short-term yields rise faster than long-term ones, a yield curve inversion has sometimes signalled expectations of slower growth or a future recession. 

3. Do stock markets fall before or after a recession starts? 

Stock markets have historically tended to fall before a recession begins, as investors anticipate weaker earnings, slowing GDP growth, and softer consumer spending. Equity prices act as a leading indicator of a recession, reflecting investor sentiment and future expectations rather than current conditions.  

Other economic warning signs – such as a flattening or inverted yield curve, declining manufacturing output, and rising unemployment – have often accompanied this shift in sentiment. Historically, markets have sometimes bottomed out before GDP data confirms the downturn, beginning to recover once investors anticipate a potential rebound. 

4. Why is gold seen as a hedge against inflation? 

Gold maintains intrinsic value that isn’t tied to any single currency or central bank policy, which makes it attractive when inflation erodes the purchasing power of money.  

During high inflation or economic uncertainty, investors have historically bought gold to protect their wealth and diversify portfolios. Its price has tended to rise when real interest rates are low or negative – a common feature of inflationary environments.  

Gold has also historically sometimes performed well during recessions or periods marked by economic warning signs, as investors have sought safe, tangible assets that can retain value even when GDP growth slows or financial markets become volatile. 

5. How do currencies react during a global recession? 

During a global recession, investors have historically moved capital into safe-haven currencies such as the US dollar, Japanese yen, or Swiss franc. These currencies strengthen because they are backed by stable economies and deep financial markets.  

Meanwhile, currencies from export-heavy or emerging economies often weaken as global trade and demand decline. Factors like falling GDP, rising unemployment rates, and a flight to liquidity have historically driven this behaviour.  

When traders observe classic signs of a recession, such as a yield curve inversion, shrinking industrial output, or weakening consumer confidence, they may historically have adjusted forex positions in favour of stability over yield, which can reinforce demand for defensive currencies. 

Markets are catching their breath after the trade truce between Washington and Beijing but the calm is disguising a deeper structural shift.  

The deal goes beyond pausing tariffs as it touches export controls, technology dialogue, and supply-chain security. It feels like déjà vu from 2018 and 2019, when tit-for-tat tariffs rattled global supply chains, tech exporters were swiftly re-rated, and resource producers suddenly returned to favour.  

Yet the stakes today are much higher. The US is not merely defending its domestic industries. It is securing control over the technologies that will define the next decade, from semiconductors to clean energy.  

Meanwhile, China is using its dominance in rare earths and critical materials as strategic leverage over its fellow superpower.  

Together, they are reshaping how the world builds, trades, and invests. It’s also a stark reminder for investors that geopolitical risk has returned as a permanent variable in how the market values risk. 

Key Points 

• The new phase of US–China trade tensions is shifting from tariffs to control over semiconductors, rare earths, and critical supply chains. 

• Capital is rotating toward resource producers and diversified manufacturing hubs as companies move away from China-centric production models. 

• Rising geopolitical risk is reshaping currencies, commodities, and sector leadership, market participants have historically favoured firms with resilient sourcing and supply-chain flexibility, based on observed trends rather than guaranteed outcomes. 

Revisiting 2018–2019: The First Wave 

The first wave of the US–China trade conflict that began in 2018 was about more than tariffs. In its first year, the US imposed duties on more than US$300 billion worth of Chinese imports, and by late 2019, that number had risen to roughly US$350 billion.  

Image 1: US Imports From China Dropped by $87 Billion in 2019. Source: Statista 

Back then, it was much more about physically-manufactured goods. The consequences for global supply chains were immediate. US imports from China fell by nearly US$87 billion between 2018 and 2019, the sharpest annual decline in US trade outside the Global Financial Crisis (GFC) at that time ^[1].  

Manufacturing hubs began to migrate not just because costs were climbing but because companies realised how dependent they had become on China for components, logistics, and assembly.  

A World Bank study found that China’s share of US imports dropped from 22% to 16%, with production shifting to Vietnam, Mexico, and other emerging hubs ^[2]. 

What followed was a fundamental rethink of global business strategy. The old playbook of chasing the lowest production cost and shipping goods worldwide gave way to a new focus on building resilient and diversified supply chains.  

Multinationals began spreading their production across multiple countries, shortening supply lines, and securing critical inputs closer to end markets. Investors started rewarding companies with visibility into their sourcing networks and penalising those that were overly reliant on a single geography (typically China).  

The 2018–2019 trade episode redefined how the market priced geopolitical risk, and laid the groundwork for today’s renewed rotation. 

H2 – What’s Different This Time? 

The last trade war was about tariffs and retaliation. This one is about control. The battleground has shifted from finished goods to the foundational technologies and materials that power them.  

Semiconductors, electric vehicles, renewable-energy infrastructure, and rare-earth minerals now sit at the heart of the competition. China still refines roughly 70% of the world’s rare earths and dominates the processing of critical minerals used in magnets, batteries, and chips.  

Export-licensing regimes are tightening, and the US is simultaneously subsidising domestic chip fabrication and encouraging allies to localise production. The structure of global trade is being slowly rewritten. 

Related Reads: Tariffs, Talks, and Tension Can the US–China Trade Truce Hold in 2025 

Winners and Losers of the New Trade Order 

The result is a rotation that goes beyond tariffs. Capital is shifting from companies that depend on China-centric manufacturing to those that control key inputs or alternative production routes.  

Rare-earth producers such as Lynas Rare Earths, MP Materials, and Arafura Resources are increasingly viewed not just as miners but as strategic enablers in the clean-energy and EV ecosystem.  

Their dominance in elements like neodymium and praseodymium gives them pricing power and relevance in a world that prizes supply assurance over pure cost efficiency. 

Meanwhile, nations such as Malaysia, Australia, and Indonesia are becoming part of a new supply corridor linking mining, refining, and downstream processing outside China. Malaysia’s new neodymium-magnet project, developed by Lynas and JS Link, reflects a “mine-to-magnet” integration model that reduces exposure to Chinese processing.  

Elsewhere, Japan’s Proterial and Shin-Etsu Chemical are expanding magnet-recycling and manufacturing capabilities to support global EV demand.  

Semiconductor players like TSMC and Amkor are diversifying their footprint across the US, Vietnam, and Malaysia, while electronics manufacturers such as Jabil and Flex are strengthening operations in Mexico to be closer to North American markets. 

These shifts are not temporary hedges but structural realignments. They redefine how and where capital flows, from growth-at-any-cost toward strategic resilience. Resource-rich economies are emerging as beneficiaries.  

Australia’s critical-minerals ecosystem and Canada’s battery-metal sector are attracting heavy Western investment, while Southeast Asia positions itself as the middle node between resource supply and advanced manufacturing. 

Remaining Nimble is “Name of the Game” 

The other side of the rotation tells a different story. Semiconductor leaders such as NVIDIA, Intel, and Micron remain caught between export controls and rising costs. Each new regulation adds another layer of uncertainty to production schedules and profit margins.  

EV makers like Tesla, BYD, and NIO are seeing input costs climb as magnet and battery materials tighten in availability. Technology exporters such as Apple, Dell, and HP, along with contract manufacturers like Foxconn and Pegatron, are facing higher logistics costs and supply delays as they diversify out of China. 

Note: Semiconductor leaders such as NVIDIA, Intel, and Micron, and EV makers like Tesla, BYD, and NIO are cited here purely for illustrative purposes to discuss industry trends and supply-chain impacts; this is not a recommendation to buy or sell any instrument. 

Related Read: How Tariffs Could Reshape Apple’s Supply Chain and Stock Outlook 

At the most vulnerable end of the spectrum are cost-takers in consumer electronics and appliances such as Haier, Hisense, and TPV Technology. These companies operate on thin margins and have little pricing flexibility, forcing them to absorb higher component costs themselves. 

The result is a new performance map. Capital is flowing toward the parts of the market that control resources and offer supply security, while those that rely heavily on low-cost, China-centric production are under pressure to adapt.  

How It Might Play Out for Investors 

Market participants may take note of companies that secure multiple sources of input, localise production, and maintain control over their value chain.  

In this new era of trade, companies focusing on resilience may be better positioned to navigate volatility. 

Aside from that, the currency and commodity markets are also affected by this shift. The Chinese yuan has been guided lower amid signs of weakening industrial competitiveness and export risk.  

At the same time, the Australian dollar has strengthened, backed by the mining-sector rally and higher resource export incomes. Commodity prices themselves are being repriced not simply on demand but on supply-security.  

Industrial metals such as copper, nickel, aluminium, and especially rare earth-related minerals, are increasingly trading on geopolitical risk premiums rather than traditional consumption cycles. 

Relief But Not Resolution 

The Trump–Xi truce offers a brief respite, but it is not a return to normalcy. The handshake signals a transition from open conflict to managed rivalry. Tariffs may have been trimmed, yet export-controls, technology bans, and localisation mandates remain unresolved.  

The underlying currents, such as strategic decoupling, investment in domestic capacity, and hedging of geopolitical exposure, continue to drive capital allocation decisions.  

For companies, this means the trade war has evolved into a supply-chain redesign that is unlikely to reverse even if diplomacy improves. 

Volatility and Opportunity 

Periods of structural change are both disruptive and fertile. Investors who understand where resilience meets growth will find opportunity amid volatility.  

Over the next decade, companies with diversified sourcing, transparent logistics, and control over essential materials may be better positioned . Those still locked into China-centric supply chains face margin compression and valuation downgrades. 

A useful way to think about this is through contrast. Consider two semiconductor firms. One still sources the majority of its inputs from Mainland China. The other has relocated production to Malaysia and the US.  

Under a new wave of export-controls or tariffs, the first could see margins evaporate, while the second may retain stability and even gain market share. This divergence in resilience is what markets are beginning to price in. 

The same principle applies to resource producers. Rare-earth miners and magnet manufacturers are no longer speculative side bets.  

They are becoming the backbone of an industrial strategy that blends technology, national security, and sustainability. Currencies and commodity flows will continue to act as real-time indicators of where global manufacturing power is migrating. 

Bottom Line for Investors 

This tariff-driven rotation marks more than a market adjustment. It signals a structural turning point in how trade, technology, and policy converge. And it’s likely to be a shift that plays out over the next five to 10 years.  

The next phase of global investing may favour companies that can endure and adapt when conditions shift. The real edge now lies in foresight and the ability to rewire supply chains, secure inputs, and anticipate regulatory change before it hits the bottom line.  

Growth still drives valuation, but resilience has become the new measure of strength. As we move into the second half of 2025, market participants may consider whether portfolios are positioned to balance expansion and risk management.  

Across empires, economic cycles, and modern markets, gold has long stood as a universal symbol of wealth, stability, and enduring value, becoming a cornerstone for those seeking to preserve purchasing power and protect against inflation.  

For many investors today, however, gold is not just a commodity—it’s a popular safe-haven asset. Its unique qualities make the precious metal a common component in portfolio diversification and long-term wealth preservation. 

Understanding the characteristics of gold can help investors make informed decisions about different ways to gain exposure in the markets.  

Why Is Gold Valuable? 

Gold’s value extends far beyond its shine and as a piece of fancy jewellery. 

Firstly, gold possesses intrinsic value due to its industrial importance and rarity. Thanks to its corrosion resistance and conductivity, gold plays crucial roles in key sectors such as electronics, aerospace, and medical technology. However, mining new reserves is increasingly difficult and expensive, which cements its position as a finite natural resource with intrinsic value.  

Within the financial system, gold has been historically used as a medium of exchange, with gold coins serving as currency as far back as 6,000 years ago. When societies evolved to paper money, gold was used as backing for banknotes under the Gold Standard, ensuring that each note represented a tangible store of value¹. 

Even after the world shifted to fiat currencies, gold has remained a cornerstone of financial stability. Central banks continue to hold substantial gold reserves as a safeguard against inflation and currency fluctuations, reinforcing its status as a global reserve asset. 

This financial resilience remains visible today.  

In 2025, gold prices once again reached record highs, driven by expectations of U.S. Federal Reserve rate cuts and renewed US-China trade tensions². Historically, such macroeconomic headwinds have strengthened gold’s appeal as a defensive asset, reinforcing its role as a long-term store of value when confidence in fiat currencies wavers.  

It’s not always a bed of roses, however. Over longer timeframes, gold tends to underperform equities during strong bull markets.  

As shown in the chart below, over the past 30 years, the S&P 500 & Dow Jones (blue and green lines respectively) have delivered higher cumulative returns than gold (in orange)—driven by sustained economic expansion and corporate earnings growth through the 1990s and 2010s.  

Chart 1: DJIA, S&P and Gold Price over the past 30 years. Sourced from TradingView (https://www.tradingview.com/x/UQZRVNqX/)  

That said, the picture changes when the timeframe shifts.  

Starting from 2000 when gold prices were near multi-decade lows, the precious metal has outperformed major stock indices, reflecting its traditional role as a safe haven during periods of market uncertainty. As seen below, it outshone the S&P 500 and Dow Jones during the 2001 tech bubble burst, the 2008 financial crisis, and the 2020 COVID-19 pandemic.  

Chart 2: DJIA, S&P, and Gold Price over the past 20 years. Sourced from TradingView (https://www.tradingview.com/x/aJ1Zh5nh/ ) 

Think of gold as the anchor that steadies the ship when markets turn rough.  

Many investors consider this stability an important characteristic of gold. While gold doesn’t generate income like stocks or bonds, it is often viewed as a store of value and a potential hedge during periods of market or currency volatility, helping diversify exposure to higher-risk assets.  

Why Do Investors Like Gold, Especially in 2025?  

While gold’s appeal has evolved over time, its role in portfolios remains distinctive. Investors are drawn to the precious metal for its liquidity, diversification benefits, perceived store-of-value qualities, and its potential performance during certain market conditions.  

Liquidity  

Gold is one of the most liquid assets in the world. It can typically be traded quickly through exchanges, banks, and authorised dealers, often within short timeframes. This high level of market accessibility gives investors flexibility when adjusting portfolio allocations or managing liquidity needs.  

Diversification  

Gold’s price movements often have a low or negative correlation with traditional risk assets such as equities. As such, it may help smooth portfolio performance over time, particularly during market stress.  

Including gold as part of a broader mix of assets is often viewed as a way to diversify and potentially reduce exposure to single-market risks.  

Store of Value  

Gold is often perceived as a long-term store of value.  

Unlike fiat currencies that can lose value through inflation, gold has maintained purchasing power over extended periods. Its enduring role as a tangible asset and global medium of exchange has made it a popular choice in both developed and emerging markets.  

Returns  

While gold is not designed to outperform growth assets, it has historically delivered periods of strong performance during times of high inflation, economic uncertainty, or low real interest rates.  

Over the past two decades, for example, gold prices have risen substantially, reinforcing its relevance as part of a diversified portfolio for the modern investor.  

How to Invest in Gold: Explore These 5 Ways  

There are many ways to gain exposure to gold, depending on your investment goals, experience, and preferred level of involvement. From holding physical bullion to trading contracts for difference (CFDs), each approach carries different costs, risks, and liquidity considerations.  

1. Physical Gold (Bullion and Jewellery) 

Owning physical gold provides direct exposure to the precious metal itself. Bullion bars range from small, fractional sizes to 400-ounce institutional bars, while widely recognised coins—such as the American Gold Eagle, Canadian Maple Leaf, and South African Krugerrand—offer standardised purity and global liquidity.  

Jewellery can also carry intrinsic value, though design mark-ups and lower purity may reduce investment efficiency compared with bullion. It may, however, carry personal or aesthetic appeal.  

Always verify purity (measured in karats or fineness) and buy from accredited dealers to reduce counterparty and authentic risks.  

2. Gold CFDs 

For investors who prefer a more active approach, contracts for difference (CFDs) offer a way to gain exposure to gold price movements without owning the underlying asset. Through CFD brokers such as Vantage, traders can go long or short based on XAU/USD depending on their market outlook, offering flexibility in both rising and falling markets.  

Unlike traditional investing, CFDs are designed for short-term speculation rather than long-term wealth preservation. Due to leverage, CFDs amplify both potential gains and losses. As such, they are typically suited to experienced traders who understand margin requirements, market volatility, and risk management.  

For readers interested in active trading strategies, see our guide on “How to Trade Gold”.  

3. Gold IRA 

A gold IRA (individual retirement account) allows investors in certain jurisdictions to hold physical gold or gold-backed assets within a retirement portfolio. This structure can offer diversification benefits and, in some cases, tax advantages depending on local regulations.  

Always review your jurisdiction’s rules, contribution limits, and custodian requirements before opening a gold IRA to ensure compliance with applicable laws.  

4. Gold Futures 

Gold futures are standardised exchange-traded contracts to buy or sell gold at a specified price on a future date. They are popular among institutional and professional investors seeking hedging or speculative purposes.  

Given that futures are leveraged instruments, even small price movements can result in significant gains or losses. Options on gold futures also offer additional strategies for those seeking limited risk—generally capped at the premium paid—but they also require experience and understanding of derivatives markets.   

5. Gold ETFs and Mining Stocks 

Exchange-traded funds (ETFs), such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), offer investors convenient, low-cost access to gold price exposure without the need to store physical metal. Each share typically represents fractional interest in gold holdings and can be traded on the stock market throughout the day.  

Gold mining equities provide another way to gain indirect exposure, as their performance is often influenced by both gold prices and company-specific factors such as production costs, management, and geopolitical conditions. However, mining stocks generally carry higher volatility and business risks than physical gold or ETFs.  

Investors should review each company’s financial strength, reserve base, and operational efficiency before considering gold mining shares as part of a diversified portfolio.  

5 Factors to Consider Before Investing in Gold  

Before allocating capital to gold, it’s worth understanding the factors that influence its performance, cost, and suitability within a broader portfolio. From market trends to storage logistics, these considerations can help investors make informed, risk-aware decisions.  

1. Market Conditions & Interest Rates 

Gold’s performance is often shaped by broader macroeconomic factors. To illustrate, the precious metal tends to perform well when real interest rates are low, inflation expectations rise, or the US dollar weakens.  

Central bank policies, global growth trends, and geopolitical developments can also influence investor sentiment towards gold. While gold is generally perceived as a safe-haven asset, its price can still fluctuate significantly depending on market conditions.   

2. Storage & Insurance 

Physical gold requires secure storage, whether at home in a safe, in a bank deposit box, or through a professional vaulting service. Each option carries different implications for cost, convenience, and security.  

Allocated storage (where specific bars or coins are registered in your name) offers direct ownership of identifiable assets, while unallocated storage pools investors’ holdings and may carry counterparty risk. Investors should also consider the cost of insurance, which varies by provider and location.  

3. Taxes & Capital Gains 

Gold investments may be subject to taxation, depending on the jurisdiction and asset type. Physical gold, ETFs, and mining equities can each have different tax treatments. Investors should review local regulations regarding capital gains, sales taxes, and retirement account eligibility.  

It’s recommended to seek professional tax advice before investing in gold.  

4. Investment Horizon & Goals 

Gold is generally used as a long-term portfolio diversifier rather than a short-term trading instrument. It may help balance risk during periods of inflation or market stress and can serve as a potential hedge against currency depreciation.  

Before investing, align your gold exposure with your broader portfolio strategy, time horizon, and risk tolerance.  

5. Potential Returns vs. Risks 

While many investors use gold for portfolio stability, it does not generate income or dividends like equities or bonds—except in cases where investors hold derivatives or structured products linked to gold that may specify a distribution under defined conditions.  

Investors should weigh the potential benefits of diversification and capital preservation against the opportunity cost of holding a non-yielding asset, particularly in environments of rising interest rates or strong equity performance.  

Gold vs. Other Investment Options 

Asset Class	Volatility	Income Yield	Inflation Hedge	Liquidity	Typical Use / Characteristics
Gold	Low to Medium	None (unless held through mining stocks, gold-lending ETFs, or certain gold-linked structured products)	Historically strong	High	Often used for diversification and defensive purposes
Stocks	High	Dividends	Moderate	High	Typically associated with growth and income potential
Cryptocurrency	Very High	None	Weak	Variable	Highly volatile; used for speculative exposure
Real Estate	Medium	Rental Income	Moderate	Low to Moderate	May serve as a long-term physical asset or income source

Gold is often viewed as a defensive asset that can help balance a portfolio during periods of market stress. Rather than competing with higher-growth investments, it typically serves as a complement within a diversified strategy.  

How Much Gold Should You Have in Your Portfolio? 

There is no universal rule when it comes to how much gold an investor should hold. The appropriate allocation depends on factors such as investment objectives, risk tolerance, time horizon, and overall portfolio composition.  

Many financial analysts and portfolio strategists suggest allocating around 2% to 10% of a diversified portfolio to gold or other precious metals may help manage risks related to inflation, currency depreciation, and market volatility³.  

Reflecting a more bullish stance, Jeffrey Gundlach, founder and CEO of DoubleLine Capital, remarked that a 25% allocation to gold is “not excessive” in the context of the US dollar weakness and shifting global currency dynamics⁴. However, this reflects one professional viewpoint and is not a recommendation. 

For most individuals, maintaining moderate exposure to gold can provide diversification benefits and potential defensive characteristics, while allowing room for assets with stronger long-term growth potential.  

The Pros and Cons of Investing in Gold 

Pros	Cons
High Liquidity  Gold can typically be bought or sold quickly across global markets, offering flexibility and access to cash when needed.	Limited or No Income Generation  Physical gold and most gold-backed ETFs do not pay interest or dividends.   Some gold-related instruments, such as mining stocks, gold-lending ETFs, or structured products, may offer income or coupon features, but these depend on product design and market performance.
Potential Hedge Against Inflation  Over long periods, gold has historically helped preserve purchasing power during episodes of rising inflation or currency weakness, although results vary across timeframes.	Can Underperform During Bull Markets   When investor confidence is strong and equities rally, gold’s defensive characteristics may lead to comparatively lower returns.
Low Correlation With Stocks  Gold prices often move differently from equity markets, which can help reduce overall portfolio volatility when used as part of a diversified investment strategy.	Storage and Insurance Costs  Holding physical gold involves ongoing expenses for safekeeping and insurance, which can erode net returns over time.
Tangible, Globally Recognised Asset  Valued and traded worldwide, gold is a physical asset that can provide a sense of security and diversification across regions and market cycles.	Price Volatility in the Short Term  Gold prices can fluctuate in the short term due to changing interest rate expectations, currency movements, and geopolitical developments.

Is Now a Good Time to Invest in Gold? 

Gold’s outlook for 2025 appears broadly constructive, supported by a mix of shifting monetary policy, ongoing geopolitical uncertainty, and steady demand from both retail and institutional investors.  

The US Federal Reserve has signalled a more accommodative stance, with potential rate cuts expected over the coming year⁵. Lower interest rates tend to reduce real yields, which can make non-income-generating assets like physical gold relatively more appealing.  

Historically, periods of monetary easing have often coincided with stronger gold performance as investors rebalanced away from lower-yielding bonds and into alternative stores of value.  

Geopolitical tensions and trade frictions—particularly involving major economies such as the US and China—continue to drive safe-haven demand. Simultaneously, central banks, especially in emerging markets, have been increasing their gold holdings⁶.  

While short-term volatility remains likely, the medium- to long-term environment remains supportive for maintaining measured exposure to gold. For many investors, gold serves as a potential hedge against economic uncertainty rather than a vehicle for speculative gains.  

For those seeking to preserve purchasing power and manage downside risk in an unsettled global landscape, gold may serve as one component within a diversified portfolio, depending on investor objectives and risk considerations. For timely insights into market trends and more, visit Vantage Academy’s Market News & Analysis.  

Example: How Gold Investment Works 

Imagine an investor allocated $1,000 in gold in 2015, when prices averaged around $1,150 per ounce. A decade later, gold trades above $2,400 per ounce, roughly doubling the nominal value of that investment⁷.  

This illustrates how gold has historically acted as a potential store of value during a period marked by economic uncertainty, including the COVID-19 pandemic and ongoing trade tensions. 

However, gold’s performance has not always been linear. Between 2012 and 2015, for example, gold prices fell by nearly 40% as the US dollar strengthened and expectations of higher interest rates reduced the precious metal’s appeal⁸. The Federal Reserve’s decision in 2014 to end its post-2008 stimulus programme also contributed to weaker sentiment towards gold⁹.  

Chart 3: Gold Price dipped during the 2012 to 2015 period. Sourced from TradingView (https://www.tradingview.com/x/935nfmeH/)  

These fluctuations highlight the importance of viewing gold as a long-term porfolio diversifier, not a tool for quick profits. Over time, gold has often shown a tendency to offset declines in risk assets and may benefit patient investors who use it to balance portfolio risk rather than pursue rapid gains.  

3 Key Risks Every Gold Investor Should Know  

Like any asset class, gold carries certain risks that investors should consider before allocating capital. Understanding these factors can help position gold appropriately within a diversified investment strategy.  

1. Price Volatility 

Gold prices fluctuate in response to macroeconomic conditions such as interest rate expectations, inflation trends, and investor sentiment. Periods of uncertainty or currency weakness can boost demand and trigger sharp rallies¹⁰. However, there are exceptions, such as in 2022 when gold rose despite higher policy rates and climbing real yields, supported by strong central-bank purchases and safe-haven flows¹¹. 

2. No Yield or Passive Income 

Unlike stocks or bonds, physical gold and most gold-backed ETFs do not produce income, such as dividends or interest payments. Returns depend primarily on price movements. As such, during periods of strong equity performance or elevated bond yields, the opportunity cost of holding non-yielding assets like gold can increase.  

Some gold-related instruments—such as mining stocks or structured products—may generate income, but these carry additional risks and depend on market conditions and issuer performance.  

3. Storage and Insurance Costs 

Owning physical gold—whether in coins or bars—requires secure storage and insurance. Professional vaulting or allocated storage can cost around 0.5% annually¹², which may erode overall returns over time. For convenience, some investors prefer ETFs or other gold-backed securities, which remove the need for physical safekeeping but introduce market and counterparty risks. 

Balancing gold with income-generating assets such as bonds or dividend-paying equities can help mitigate these drawbacks and allow gold to serve its potential purpose as a diversifier and defensive component within a broader portfolio.  

Why Gold Remains a Frontier Worth Exploring 

Gold’s enduring appeal lies in its ability to remain relevant across generations of investors. While currencies and asset classes evolve over time, gold continues to hold significance as a globally recognised store of value and a potential safe-haven asset during times of uncertainty.  

Investors don’t need to view gold as a replacement for growth assets but rather as a complement that can enhance diversification and resilience. By incorporating gold thoughtfully within a balanced portfolio, investors may be better positioned to navigate periods of market stress and preserve long-term purchasing power.  

Interested in gaining exposure to gold? Open a live account with Vantage today to explore gold CFDs (XAU/USD) and access global markets with flexible position sizing.

Vantage Foundation has donated HKD 1 million to support emergency relief and recovery efforts following the devastating No. 5 alarm fire incident at Wang Fuk Court in Tai Po, Hong Kong. The fire severely damaged many households and disrupted the lives of local residents.

The donation has been channelled to accredited local charitable organisations to provide immediate emergency assistance, including temporary shelter, essential daily supplies, and mid-term community recovery support to help families rebuild stability in the aftermath.

In addition to financial contributions, representatives from Vantage management and members of the charity team visited the affected community to participate in on-site relief efforts. During the visit, the team provided comfort and distributed supplies to the affected residents as they navigate the aftermath of the incident. This hands-on involvement reflects Vantage’s commitment to hands-on corporate social responsibility.

Vantage Foundation has a long history of supporting disaster relief, education, and community programmes across Asia and beyond. The Foundation will continue to monitor the ongoing needs arising from the Tai Po fire incident and explore additional opportunities to support long-term recovery where assistance is still needed.

Vantage remains committed to standing with communities during critical moments—providing not only resources, but also the human connection and empathy that help foster lasting resilience.

Disclaimer:

Vantage Foundation is an independent charitable organisation and operates separately from the regulated Vantage Markets trading entities. This announcement is for informational purposes only and is not related to any trading products or services.

Here are the share CFD dividends that will be paid out from 2 December 2025：

Instruments	2 Dec 2025	3 Dec 2025	4 Dec 2025	5 Dec 2025	8 Dec 2025	9 Dec 2025	10 Dec 2025
DJ30 (USD)	24.627	0.000	14.222	0.000	13.606	0.000	6.772
SPI200 (AUD)	0.000	0.108	0.100	0.000	0.000	0.000	0.000
HK50 (HKD)	20.580	34.762	22.090	0.000	0.000	0.000	0.994
Nikkei225 (JPN)	0.000	0.000	0.000	0.000	0.000	0.000	0.000
SP500 (USD)	0.197	0.226	0.470	1.040	0.586	0.063	0.224
UK100 (GBP)	0.000	0.000	1.830	0.000	0.000	0.000	0.000
NAS100 (USD)	0.000	1.508	1.402	2.991	1.916	0.175	0.339
EU50 (EUR)	1.915	0.000	0.000	0.000	0.000	0.000	0.000
FRA40 (EUR)	8.835	0.000	0.000	0.000	0.000	0.000	0.000
ES35 (EUR)	0.000	0.000	0.000	0.000	0.000	0.000	0.000
CHINA50(USD)	0.000	0.000	0.000	0.000	0.000	0.000	0.000
US2000(USD)	0.023	0.051	0.215	0.334	0.074	0.093	0.097
SA40(ZAR)	0.000	57.602	0.000	0.000	0.000	0.000	0.000
SGP20(SGD)	0.000	0.000	0.000	0.125	0.000	0.000	0.000
TWINDEX(USD)	0.000	0.000	0.000	0.000	0.000	0.098	0.000
HKTECH(HKD)	0.000	0.000	1.809	0.000	0.000	0.000	0.933
CHINAH(HKD)	7.069	18.300	0.000	0.000	0.000	0.000	0.000
IND50(USD)	0.000	0.000	0.000	0.000	0.000	0.000	0.000
SWI20(CHF)	0.000	0.000	0.000	0.000	0.000	0.000	0.000
NETH25(EUR)	0.000	0.000	0.000	0.000	0.000	0.000	0.000