A portfolio manager is considering adding exposure to gold as a commodity. Which of the following is the most common reason for including gold in a diversified investment portfolio?

Question: A portfolio manager is considering adding exposure to gold as a commodity. Which of the following is the most common reason for including gold in a diversified investment portfolio?

Answer options:

• Its high correlation with equity markets during periods of growth. ✅ Its potential to provide a hedge against inflation and geopolitical uncertainty.
• Its consistent income generation through dividends.
• Its primary use as an industrial metal, driving demand.

Correct answer: Its potential to provide a hedge against inflation and geopolitical uncertainty.

Explanation: Gold is often considered an inflation hedge and a safe-haven asset, performing well during periods of economic uncertainty or geopolitical instability, thus providing diversification benefits to a portfolio. It does not typically generate income like dividends and is less correlated with equity markets during growth phases.