Gold Investment Performance Compared to Stocks and Bonds

If you're considering investing in gold, it's essential to understand how it compares to other popular investment options like stocks and bonds. Historically, gold has outperformed stocks during periods of high inflation.

In the past, gold has shown remarkable resilience during economic downturns, with a 2008 study showing that it increased in value by 25% while stocks plummeted.

The price of gold was effectively set at $35 per ounce from 1934 to 1971, a period that saw a price appreciation of approximately 5,700% by 2022.

From 1971 to 2022, the DJIA appreciated in value by around 3874%.

Over the past 40 years, large-cap stocks traded in the U.S. have easily outperformed gold and U.S. bonds, with the S&P 500 returning an annualized 11.5% before inflation.

The S&P 500's annualized total return, adjusted for inflation, came to 8.4% over the same time frame.

Gold's returns over the same span were less impressive, generating an annualized return of 3.8% before inflation, and 0.9% after adjusting for inflation.

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The 10-year Treasury note delivered an annualized return of 5.2% over the same time frame, and 2.3% after adjusting for inflation.

Over the past 30 years, the S&P 500 generated an annualized total return of 10% before inflation, and 7.3% after inflation.

The 10-year Treasury note delivered an annualized return of 3.8% over the same span, and 1.3% after inflation.

Gold generated an annualized return of 6.1% before inflation, and 3.5% after inflation, trailing both bonds and stocks.

The price of gold actually dropped about 27% between 1989 and 1999, a period that often sees gold lose value in prosperous times.

From 2000 through 2023, gold generated an annualized return of 9%, adjusted for inflation that comes to 6.3% annualized.

Stocks still beat gold over that two-decade span, with a total return of 10.3% annualized, or 7.5% after factoring in inflation.

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Over the past 40 years, the S&P 500 has outperformed gold and U.S. bonds, returning an annualized 11.5% before inflation and 8.4% after adjusting for inflation.

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From 1983 to 2023, gold's annualized return before inflation was 3.8%, and after adjusting for inflation, it was 0.9%. The 10-year Treasury note delivered an annualized return of 5.2% before inflation and 2.3% after adjusting for inflation.

The average annual return of gold from January 1971 to December 2019 was 10.6%, with a notable spike to 13.8% in 2023.

Gold's performance has varied over time, and its real return has been greater than you might think. In fact, over the past 50 years, gold's long-run return has been well above inflation, more closely mirroring global gross domestic product (GDP).

Here's a comparison of the annualized returns of gold, the S&P 500, and the 10-year Treasury note over different time periods:

Note that gold's performance has been inconsistent over time, and its real return has been influenced by various factors, including economic growth, inflation, and changes in demand.

Gold prices can be volatile, and premiums can vary significantly depending on the market. In 1978, a long-term time series of gold prices in various currencies was established, giving us a benchmark to track gold's performance over time.

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The local gold price premium or discount can also impact investment decisions. For example, in India and China, there's often a difference between the international US$ gold price and the local gold price paid by consumers in their respective markets.

Gold futures prices can also be influenced by market fluctuations. Futures prices for gold across several key exchanges and future dates can give investors an idea of where gold prices might be headed.

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Gold reached an all-time high of $2,089 per ounce in August 2020 amid the COVID-19 pandemic before cooling off.

The price of gold rose above $2,000 in March 2022 in response to the Russian invasion of Ukraine, eventually surpassing the 2020 high as of March 2024.

Over the past 30 years, corporate bonds have returned around 330%, similar to gold.

The average annual rate of return on investment-grade corporate bonds going back to the 1920s through 2020 is around 5%.

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Gold prices have fluctuated over the years, with a long-term time series showing the price in various currencies from 1978.

The price of gold reached an all-time high of $2,089 per ounce in August 2020 amid the COVID-19 pandemic.

A time series of the difference between international US$ gold price and the local gold price paid by Indian and Chinese consumers in their respective markets reveals local gold price premiums or discounts.

Futures prices for gold across several key exchanges and future dates indicate the expected price of gold at a later date.

Gold prices have responded to global events, such as the Russian invasion of Ukraine, by rising above $2,000 in March 2022 and eventually surpassing the 2020 high by March 2024.

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Over the past 30 years, the S&P 500 has generated a remarkable 10% annualized total return before inflation.

The 10-year Treasury note delivered an annualized return of 3.8% over the same span.

Gold, on the other hand, generated an annualized return of 6.1% before inflation, but this is still lower than the S&P 500's return.

Between 1989 and 1999, the price of gold actually dropped about 27%.

Gold often loses value in prosperous times, as the 1990s generally were.

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Over the past 40 years, large-cap stocks in the US have outperformed bonds and gold, with the S&P 500 returning an annualized 11.5% before inflation.

Bonds, specifically the 10-year Treasury note, delivered an annualized return of 5.2% over the same time frame, significantly lower than the stock market's performance.

Gold, however, has struggled to keep pace, generating an annualized return of 3.8% before inflation and 0.9% after adjusting for inflation.

In fact, the 10-year Treasury note delivered an annualized return of 3.8% over the past 30 years, while gold's annualized return came to 6.1% before inflation.

Despite gold's relatively strong performance over the past 30 years, it still trailed both bonds and stocks, with the S&P 500 generating an annualized total return of 10% before inflation.

Stocks seem to outperform gold by about 3-to-1 over the longer term, with the Dow Jones Industrial Average (DJIA) gaining 991% from 1990 to 2020, while gold increased by around 360% over the same period.

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Cryptocurrency's performance can be surprising. Since Bitcoin emerged in 2009, it has greatly outperformed most other asset classes, including gold, rising from less than $1 to several thousands of dollars.

However, over the past two years, gold has outperformed cryptocurrencies. This is largely due to the bear market that hit Bitcoin and other cryptocurrencies throughout 2022.

Bitcoin's rapid growth is often compared to digital gold. Its scarcity and fixed and diminishing rate of new supply contribute to this comparison.

The fact that gold has outperformed cryptocurrencies over the past two years shows that cryptocurrency's performance can be unpredictable.

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Investing in gold has proven to be a wise decision when the US Dollar is falling. In the five years leading up to 2008, buying gold returned 131%, significantly outperforming the 47% gain from investing in Euros.

The benefits of gold investment extend to other major world currencies as well. British, Australian, South African, and Indian citizens who invested in gold in 2007 saw the gold price reach record new all-time highs.

This trend shows that gold is a reliable store of value, even when other currencies are struggling. The strong returns on gold investment demonstrate its potential as a safe-haven asset.

Gold isn't the inflation hedge it's cracked up to be, as the price of gold doesn't always track inflation. Between 1987 and 2001, as inflation fluctuated around 3% a year, the price of gold dropped.

During periods of extraordinarily high inflation, gold's price may soar, as happened from the mid-1970s through the early '80s when inflation crept from 4.8% in 1976 to 13.3% in 1979 and 12.4% in 1980. The price of gold leapt from less than $150 an ounce to more than $800.

However, this isn't what happened in 2022, even though inflation spiked around the globe. Gold prices climbed about 13% for the year-to-date at one point in the first few months of 2022, but they were also down as much as 10% YTD by November.

The surge in crude oil prices has closely matched the gains in gold prices since 2003. Rising demand for better housing and durable goods from Asian consumers is certainly a factor.

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Gold investment performance has been a popular choice for investors seeking a safe-haven asset.

Historically, gold has outperformed other major asset classes during times of economic uncertainty.

In 2008, during the global financial crisis, gold prices surged by 25.5% in a single year, while the S&P 500 fell by 38.5%.

The gold price has also been influenced by central bank policies, with the US Federal Reserve's decision to keep interest rates low leading to a 28% increase in gold prices between 2009 and 2011.

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Understanding correlations between asset classes is crucial for making informed investment decisions. A cross-sectional analysis of gold's correlation to other major asset classes reveals some interesting patterns.

Gold's correlation with stocks is generally low, often hovering around 0.1. This means that gold tends to move independently of the stock market.

In times of economic uncertainty, investors often turn to gold as a safe-haven asset. This is reflected in its higher correlation with bonds, which is around 0.5.

A closer look at gold's correlation with commodities reveals a higher degree of similarity, particularly with silver, which is around 0.7. This is likely due to their shared industrial uses and market dynamics.

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Trading volumes play a crucial role in understanding market dynamics.

The aggregation of gold trading volumes across trading venues reveals a significant increase in recent years, with some exchanges reporting a 50% rise in trading activity.

This surge in trading volumes is largely driven by the growing demand for gold as a safe-haven asset, particularly during times of economic uncertainty.

Gold trading volumes have been consistently high, with some days seeing over $100 billion in trading activity.

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Gold investment has grown dramatically worldwide over the last five years, but it still represents a tiny proportion of total financial assets.

The growth in gold investment is being driven by several factors, including new pension fund money and private investors.

Gold bullion investment is still a relatively small part of the overall financial market, despite its rapid growth.

In the last five years, gold investment has seen a significant surge in popularity, but it's essential to keep things in perspective.

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New Markets Demand is on the rise, driven by the growth of local economies in Asia. Sales of gold jewelry across Asia are surging, with China's gold investment demand growing by 20% in 2007.

In India, consumers bought a record 900 tonnes of gold, accounting for over one-fifth of the total world market. This trend is particularly notable in countries where people view gold jewelry as a form of gold investment.

Gold buyers in Asia tend to think of their jewelry as a way to protect their savings from inflation and currency shocks. This mindset is driving the popularity of "investment jewelry" in the gold industry.

Heavy chains and bracelets are the most popular form of gold jewelry in Asia, reflecting the region's growing demand for gold investment.

The global credit crunch was triggered by complex debt instruments like MBS, CDOs, and CDS that turned sour.

These instruments thrive in opaque environments, which is why transparency is crucial.

Investors who got cheated were those who didn't have access to audited accounts and open exchanges.

Gold is not a reliable store of value due to its volatile price fluctuations. In 2012, its price rose almost 6%, but in 2013, it tumbled 28%.

The precious metal's price can be unpredictable, as seen in 2017 when it surged 12.6% and then dropped 1.2% in 2018.

Over the past decade, gold prices have been inconsistent, falling 16.5% in the first five years ended April 15, 2016.

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Gold is a simple and transparent investment option that can provide a safe haven during times of financial uncertainty. Unlike complex debt instruments, gold investment remains uncomplicated and doesn't rely on opaque financial engineering.

The global credit crunch was triggered by the failure of complex debt instruments such as MBS, CDOs, and CDS, which thrive in off-balance-sheet environments. Transparency is essential in modern finance, and gold investment stands out for its openness.

A solid gold investment can shield you from the risk of credit default or banking failures. This is a valuable asset to have, especially in today's complex financial landscape.

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The pandemic-fueled selloff in stocks in 2020 showed how gold can perform well during times of crisis. By March 23, 2020, gold prices had held firm, while the S&P 500 had lost over 30% of its value.

Gold's price can rise with bad news, such as a global pandemic or a sovereign debt crisis, and drop with good news, like better-than-expected economic growth. This is a characteristic of gold's performance during times of uncertainty.

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Gold investment performance can be a bit tricky to navigate, but here are some key takeaways to keep in mind.

Gold has long been considered a durable store of value and a hedge against inflation, which is a good thing to know if you're looking to protect your wealth during uncertain times.

Over the long run, both stocks and bonds have outperformed the price increase in gold on average, so it's not a guarantee of success. However, it's worth noting that gold has had its moments of glory.

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Gold tends to rise during periods of high inflation and geopolitical uncertainty, which is why it spiked above $2,000 per ounce during the Russia-Ukraine conflict in early 2022.

In 2020, gold reached an all-time high of nearly $2,089 as the COVID-19 pandemic spread, showing that it can be a safe haven during times of crisis.

Here's a quick summary of gold's performance over different time spans: