Gold prices have seen an 8 per cent increase on an annualised basis since 1971, showing comparable performance with equities but outperforming bonds. The World Gold Council (WGC) highlighted in their research titled “Gold as a strategic asset” that the precious metal has delivered strong returns over the past three, five, 10, and 20 years, as well as in 2024.
Since the US gold standard collapsed in 1971, gold has outpaced both the US and world consumer price indices, providing protection against high inflation. The research emphasized that in years with inflation ranging between 2 per cent and 5 per cent, gold’s price has increased by an average of 8 per cent annually, with even higher levels of inflation leading to more significant growth. This long-term trend showcases how gold not only preserves capital but also helps it grow.
The diversity of demand for gold as both an investment and a luxury good has contributed to its ability to deliver annualized returns while maintaining lower volatility compared to some equity indices and other asset classes. The research also pointed out that since 1971, gold has significantly outperformed major currencies and commodities as a medium of exchange.
Furthermore, gold has proven to perform well during deflationary periods, characterized by low interest rates, reduced consumption and investment, and financial stress. Quantitative easing measures implemented during the global financial crisis and the Covid pandemic led many investors to turn to gold as a hedge against currency devaluation and to preserve purchasing power. Even during market downturns, such as in 2008 and 2020, gold remained resilient while other asset classes experienced declines.
While gold can provide a positive correlation with equities and other risk assets in favorable market conditions, it also carries certain risks. Notably, gold’s asymmetric correlation with equities means it tends to perform better when equities fall than when they rise. Additionally, gold does not offer a regular income stream like bonds or some stocks, as it lacks credit or counterparty risks. Investors rely on price appreciation to benefit from gold’s performance, which has historically shown a strong track record.
In conclusion, the research highlighted that the global gold market is large, liquid, and estimated to be worth trillions of dollars, making gold a versatile asset for investors. While gold has its risks, its historical performance and ability to preserve and grow capital make it a valuable addition to a diversified investment portfolio.
