Gold has been making headlines lately as prices continue to reach new highs. But beneath the rally lies a surprising reality: most investors still have very little exposure to gold in their portfolios. That disconnect raises an interesting question. If gold is already performing well with such limited ownership, what might happen if allocations begin to move back toward historical norms?

In a recent video, Alan Hibbard explores just how under-owned gold really is—and what that could mean for the next phase of the bull market. Gold’s Surprisingly Small Role in Modern Portfolios Despite gold’s reputation as a cornerstone of wealth preservation, the metal occupies only a tiny slice of most investment portfolios today. According to available data, the average portfolio manager allocates roughly 1.9% of assets to gold. That figure stands in stark contrast to what many prominent investors and institutions have suggested over the years.

Hedge fund manager Ray Dalio, for example, has recommended that investors hold between 5% and 15% of their portfolios in gold as part of a diversified strategy. Other frameworks have suggested allocations closer to 20% under certain conditions. Regardless of the exact number, the gap is striking. If the average investor currently holds around 2% in gold while many strategies suggest significantly higher levels, it implies that gold remains structurally under-owned across the investment landscape.

Importantly, this doesn’t necessarily mean investors will suddenly increase allocations tenfold. But even a gradual shift toward higher allocations could have meaningful consequences for the gold market. For instance, the very nature of gold as a finite resource—where new supply is limited—can exacerbate price movements when demand increases, potentially leading to much higher valuations. Where Could the Capital Come From?

If investors were to increase their gold exposure, the natural question becomes: where would the capital come from? One potential answer lies in the extraordinary concentration of wealth currently held in equities. U.S. households now hold roughly 45% to 49% of their financial assets in stocks, a level that exceeds even the peak seen during the dot-com bubble in 1999.

High equity allocations often reflect strong confidence in stock markets, but they can also create conditions where portfolios become heavily tilted toward a single asset class. When that happens, even modest rebalancing can have a noticeable impact on other markets. In practical terms, shifting just a small portion of capital out of equities and into gold would represent a significant inflow relative to the size of the gold market. The gold market is far smaller than global equity markets, so even relatively small portfolio adjustments can move prices disproportionately.

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This means that as investors reevaluate their asset allocations, even a minor shift towards gold could lead to significant price appreciation due to the relative scarcity of the asset. What the Models Suggest About Gold’s Potential Some analysts have attempted to estimate how gold prices might respond to changes in investor allocation. One scenario modeled by JPMorgan looked at what would happen if household gold allocations increased from around 3% of assets under management to roughly 4.6%. Even that relatively modest shift—just 1.6 percentage points—could potentially push gold prices into the range of $8,000 to $8,500 per ounce, according to the bank’s model.

However, Alan notes an important caveat. Asset prices rarely move in perfectly linear relationships with demand. Historically, when investment demand for gold accelerates, prices often move in a nonlinear or parabolic fashion. That means even modest increases in portfolio allocations could result in price movements larger than traditional models anticipate.

In other words, small changes in capital flows can sometimes produce surprisingly large moves in the gold market. The Long-Term Rotation Between Stocks and Gold Another way to understand gold’s potential is to look at long-term capital cycles. Over the past century, investors have repeatedly rotated between equities and gold depending on the broader economic environment. During periods characterized by strong economic growth and financial stability, stocks tend to dominate investor portfolios.

But during periods of inflation, rising debt, geopolitical uncertainty, or financial instability, gold often becomes more attractive as a store of value. Historical data shows these rotations occurring multiple times since the early 1900s. Notable periods include the inflationary decade of the 1970s, when gold dramatically outperformed equities as investors sought protection against currency debasement and rising prices. Today, the relative size of the gold market compared to equities sits roughly around its long-term average.

That suggests we may not yet have reached the kind of extreme conditions that historically marked the later stages of major gold bull markets. In fact, current global economic factors—including persistent inflationary pressures and elevated debt levels—may indicate we are still early in the cycle of gold’s resurgence. Why Some Investors Believe the Cycle Is Still Early Several structural trends are now reinforcing the long-term case for gold.