Once purchased, physical gold needs to be stored, secured and possibly insured which all incur additional costs to the holder. Beyond its traditional roles, gold also plays a critical part in modern technology, being used in electronics such as cell phones and circuit boards, as well as in aerospace and medical devices, due to its excellent conductivity.
What do gold futures reveal about investor sentiment and market structure?
There are futures contracts listed on various exchanges globally, such as the CME, that reference a specification on the delivery of physical bullion at a future date. Investment via futures is generally unfunded with only an initial margin and brokerage fees due at trade inception. However, the drawback of gold is that it does not yield income or dividends and there are costs associated with storage, security and insurance in holding the asset.
These costs are reflected by a contango forward curve as seen in the chart of Exhibit 1; this results in a negative roll yield in gold indices such as the Bloomberg Gold Subindex Index}. Over the past year, this cost of carry for BCOMGC has been approximately 1%. Over the past 5 years, the gold forward curve has steepened into deeper contango as a result of the higher interest rate regime – the purple line (2025) is more upward sloping compared to the orange line (2020).
For the financial format, gold can be accessed in index format – the Bloomberg Gold index exposure can be replicated via rolling futures contracts which in excess return form, capture spot and roll yield returns. Gold is often partnered with other assets, such as silver in the Bloomberg Precious Metals Index {BCOMPR Index} or Bitcoin in the Bloomberg Bitcoin and Gold BBIG Index {BBIG Index}. BBIG is equally weighted with quarterly rebalancing at the end of March, June, September and December to fixed 50%/50% weights.
What are the benefits of investing in a Gold and Bitcoin index instead of holding each asset separately?
In Exhibit 2, we show the relative weights of Bitcoin and gold over time in the BBIG Index. The weights are fixed to 50%/50% on each quarterly rebalance date, and between these dates, the weights of each component will deviate. As Bitcoin rallied in Q4 2024, post–US election results, its representative increased to 63%. The index weights were then rebalanced back to 50%/50% weights at the end of December 2024.
During the quarterly rebalancing process, the BBIG index may rise in the short term and then scale back during periods of price reversion. Overall, since Jan-24 the quarterly rebalancing version of the equal-weighted index has outperformed the no-rebalancing equal dollar notional version by 4.30 % annualized.
Another big hurdle for digital assets is their elevated volatility – the long-term volatility of Bitcoin was 100% but has recently decreased to 44%. By coupling these two uncorrelated assets together, the 1-year volatility of the index is dampened to 25%. The long-term 3-year correlation is 2%, however over the past year as both Bitcoin and gold have risen in tandem, correlation reaching a new high at 44% in Aug-24, as seen in Exhibit 3.
The Bloomberg Commodities Index (BCOM) is a broad-based commodities benchmark. Currently, BCOM has approximately $108bn of global benchmarked assets. As of November 2025, BCOM is currently constructed using 24 of the most traded commodities futures contracts across 6 sectors of Energy, Grains, Softs, Livestock, Industrial metals, and Precious metals, – including gold. One third of the target weights in BCOM is derived according to the world production of each commodity and two thirds are derived from the underlying liquidity of each commodity futures market.
However, for gold and silver, liquidity measures are only considered due to their limited ongoing production and mining. Thereafter, weights are then adjusted further to cap commodity and sector exposures enhancing diversification and reducing the impact of idiosyncratic risk – where single commodities exposure capped at 15% and floored at 2%. As seen in the chart of Exhibit 4, the weight of gold in BCOM has been steadily increasing year-on-year to the 15% cap, where it has been hovering since 2022. An explanation for this uptick in weight representation could be due to greater liquidity in trading volumes as the gold market has experienced a dramatic shift to financialization with the advent and subsequent growth of gold ETFs over the past two decades.
Gold’s journey from a timeless physical store of value to its use in financial indices underscores its enduring relevance in an ever-changing investment landscape. Whether held in tangible form, traded through futures, or accessed via diversified indices, gold continues to bridge the worlds of old traditions and high-tech innovation. Gold holds a dual identity: as both a defensive asset and a component of the total portfolio approach. As markets navigate volatility, digital transformation, and shifting macroeconomic tides, the shiny yellow metal continues to play a significant role in providing balance, resilience, and long-term value.
Learn more about Bloomberg Commodity Indices here.
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