The Sharpe ratio is a strategy's return in excess of the risk-free rate divided by the standard deviation of those returns, measuring return per unit of variability. Institutions favour it because it rewards consistency: two gold strategies with identical total returns score very differently if one produced its result smoothly and the other through violent swings.
Its main limitation is that it penalises upside volatility exactly as it penalises downside, marking down strategies whose profitability depends on occasional large winners. On retail XAUUSD records the ratio is frequently quoted without the period, return frequency, risk-free rate or sample length that determine it entirely, so it should be read alongside expectancy and maximum drawdown rather than as a standalone verdict.