Should gold be in your retirement portfolio? A balanced look at the asset that pays no income

Gold comes up in retirement conversations whenever the headlines are bad — high inflation, a sharp market fall, a banking scare, a geopolitical shock — and the instinct is understandable. For some retirees, holding a little gold provides genuine emotional comfort, and it can play a small role as a diversifier with low correlation to shares. But for retirees specifically, gold has structural drawbacks that are easy to underweight: it produces no income at all — no dividends, no interest, no distributions — so it contributes nothing to the cashflow that funds retirement spending; it has real opportunity cost versus income-producing assets across most periods; and physical bullion adds storage, insurance, and spread costs that nibble at returns every year. There are several ways to hold it — physical bullion, gold exchange-traded funds (ETFs) listed on the ASX (such as PMGOLD, GOLD, and AAUS as examples of the category), or gold mining shares (which behave like equities, not like gold) — each with different tax, Centrelink, and practical implications. Centrelink treats physical gold as a fully assessable asset at market value (with no deemed income, because none is produced), while a gold ETF is a financial investment subject to deeming for the income test. For most retirees, the sensible range is 0–10% in gold, with the upper end rarely warranted, and a low-cost ETF the cleanest form. Gold isn't necessary — but a small, deliberate allocation can be defensible, particularly where it helps an anxious person stay invested in everything else.

What's the case for a small allocation?

The case rests on a few real properties, with caveats. Gold has shown low (sometimes negative) correlation with shares in shorter periods — especially during sharp crises — which gives some genuine diversification benefit. It has performed reasonably as an inflation hedge in certain episodes (notably the 1970s) but inconsistently in others, so the "gold always rises with inflation" narrative is much weaker than it is often presented. During acute crises — severe market dislocations, banking failures, geopolitical shocks — gold prices have often risen, providing some offset against equity declines. The broad investment consensus is that a small allocation, often suggested at 5–10% at the maximum, can mildly improve risk-adjusted returns over long periods. Modest and properly framed, that is not nothing.

What are the structural drawbacks for retirees?

The drawbacks are harder to talk away. No income is the biggest one — gold produces no dividends, interest, or distributions, so every dollar of spending it ever supports requires selling the position and crystallising any capital gain. For a retiree drawing 4–5% from a portfolio, the proportion allocated to a non-income-producing asset is a real, ongoing cashflow drag. Over most long periods, diversified equities have substantially outperformed gold while paying income along the way — the opportunity cost is significant. Storage and insurance on physical bullion can typically cost in the order of 0.5–1.5% of the value each year for fully insured professional storage, and spreads on buying and selling physical gold (especially coins) commonly run a few per cent above the spot price — a transaction cost on every purchase and sale. And gold itself is volatile: single-year drawdowns of 20–30% are not unusual. It isn't a low-risk asset; it is a low-correlation one. None of these drawbacks disqualifies gold; they just frame the cost of holding it.

Does how you hold it matter as much as whether you hold it?

Physical bullion (coins or bars, allocated or unallocated through a depository such as the Perth Mint) gives the most tangible exposure but at the highest cost: storage, insurance, security, and spreads. "Allocated" bullion is specific identifiable holdings; "unallocated" or "pool" bullion is a claim on a pool — cheaper, but with counterparty risk to the depository. Gold ETFs listed on the ASX (examples like PMGOLD, GOLD, and AAUS, each backed by physical gold held by a custodian) provide the same exposure at modest annual management fees, typically a fraction of a per cent, with the liquidity of a normal share, no storage, no insurance, and simple tax records. For most retirees, the ETF route is clearly preferable for any meaningful allocation. Gold mining shares are a different beast altogether: they are equity in mining companies, with operational, cost, and management risks layered on top of the gold price, they tend to be more volatile than gold itself, and they shouldn't be confused with a gold position. Inside a self-managed super fund (SMSF), gold can be held but is subject to strict rules — it must satisfy the sole purpose test, and gold coins held for investment are treated as collectables, which under SIS Regulation 13.18AA must be insured in the fund's name within seven days, cannot be stored in a related party's private residence, and require a documented storage decision checked by the fund's auditor each year (ATO, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-investing/restrictions-on-smsf-investments/what-are-the-smsf-investment-restrictions). Those compliance costs often make a gold ETF the more sensible choice for an SMSF too.

How does tax and Centrelink treat gold?

In personal name, selling physical bullion or ETF units is a capital gains tax (CGT) event, with the 50% CGT discount applying for individuals if the asset has been held for at least 12 months (ATO, https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount). There is no income during the holding period for pure bullion, so the only taxable event is the sale, though some ETFs may make modest distributions. For Centrelink, physical gold is an assessable asset at market value but is not deemed for the income test, because it doesn't produce income and isn't held with a financial-product provider. A gold ETF, by contrast, is treated as a financial investment — assessable as an asset and deemed to earn income at the prevailing deeming rates (1.25% on the first $66,800 of financial assets for a single person, $110,600 for a couple, and 3.25% above) regardless of any actual return (DSS Social Security Guide 4.4.1.10, https://guides.dss.gov.au/social-security-guide/4/4/1/10). Either way, gold isn't outside the Centrelink system — people sometimes assume it is.

How much, if any, should you hold?

The conservative consensus is 0–10%, biased to the lower end (3–5%) for most diversified portfolios. For income-focused retirees the lack of cashflow argues for less; for those who genuinely want a small position for behavioural comfort, a deliberate 3–5% via a low-cost ETF is usually the sensible outcome. Allocations of 20% or more are very rarely warranted — at that point it is a macro bet, not a diversification position, and the cost of being wrong is substantial. For most retirees, a well-diversified portfolio of Australian and international shares, bonds, and cash already provides much of the diversification benefit gold contributes, at lower cost and with income along the way. Gold is rarely necessary; it is an optional add.

What does the gold decision look like in practice?

These two cases show the gold question in practice. They are illustrative only and not personal advice.

Norah, 72, is anxious about inflation and has read several articles suggesting retirees should hold "20 to 30 per cent" of their portfolio in gold. She is about to call her broker to put $300,000 into physical bullion. On these facts, the size of the allocation needs the most attention. A 30% gold position is a substantial macro bet — gold is volatile (single-year drawdowns of 20–30% are not unusual), pays nothing, and would mean nearly a third of her portfolio contributing zero cashflow to her retirement spending. On these facts it is generally rational to talk Norah back to a sensible range — 5–10% at the upper end, perhaps 5% ($50,000) as a behavioural buffer that takes the edge off her inflation anxiety without dominating the portfolio — and to use a bullion-backed ASX-listed ETF (fully liquid, no storage drag) rather than physical, saving her the spread, insurance, and security overheads of $300,000 in coins or bars. To address the inflation concern itself, a more direct inflation hedge such as Treasury Indexed Bonds is worth pointing to, alongside confirming her broader diversified portfolio suits her risk profile. Norah ends up with a small, deliberate gold position that helps her stay invested in the rest of her portfolio — without writing a macro insurance cheque she didn't need.

Lev, 75, has held about $80,000 of physical Perth Mint coins in a home safe for over a decade, bought when gold was much cheaper. He is wondering whether to sell and switch to an ETF, or sell up entirely. On these facts, the practical questions are CGT, insurance and security risk, and his portfolio context. Selling the coins is a CGT event — the embedded gain (say roughly $50,000) realised at his marginal rate, with the 50% discount since he has held them well over 12 months (ATO, https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount). Switching to an ETF saves him the home-storage and insurance overhead and gives him liquidity, but crystallises the CGT now rather than later. On these facts, if the physical position is a sensible 3–5% of his total portfolio and the home-storage risk is acceptable, leaving it alone may be the simplest outcome (with the CGT deferred until he or his estate eventually sells); if the position is larger than he would choose today, or the home storage is a genuine risk, the switch to an ETF — or progressive sales over several financial years to manage the CGT in chunks — is the better call. The Centrelink position is unchanged in substance either way: it is an assessable asset at market value in physical form, and assessable plus deemed in ETF form (so the move would add slightly to his deemed income). The deciding factors are size, storage risk, and Lev's tolerance for paying CGT now versus later — not the gold price itself.

For retirees thinking about gold, the right conversation isn't whether the headlines are scary; it is whether a small, deliberate allocation genuinely fits the portfolio and the person. The work is to identify the underlying driver (inflation, crisis, ideology, or behaviour) and respond to that directly; to set a sensible allocation ceiling (0–10%, often nearer the lower end); to prefer bullion-backed ETFs over physical for almost every retail or SMSF use case, on cost, liquidity, and storage grounds; to be clear that gold pays no income and that drawing on it always requires a sale; to distinguish gold from gold mining shares (which are equities); to factor in the Centrelink position (assessable in all forms, deemed for ETFs); and, for SMSFs, to weigh the compliance overhead of physical bullion against the ETF alternative. The headline most people need to hear is the balanced one: gold isn't useless and it isn't a panacea — it is an optional, modestly useful diversifier with a real income cost, best held in small amounts and in low-friction form. The figures and rules move with markets and policy, so confirm the current CGT treatment, deeming rates, SMSF requirements, and product fees before relying on them — but the shape of the decision is durable.

Sources

• ATO — CGT discount
• ATO — What are the SMSF investment restrictions (collectables and storage)
• DSS Social Security Guide 4.4.1.10 — Overview of deeming