Gold is considered a safe investment. It is supposed to act as a safe haven when markets are in decline, because the price of gold typically doesn’t move with market prices. As a result, gold also can be considered a risky investment, as history has shown that the price of gold does not always go up, particularly when markets are soaring. Investors typically turn to gold when there is fear in the market and they expect prices of stocks to go down.
Furthermore, gold is generally not an income-generating asset, though there are some gold bonds. Unlike stocks and bonds, the return on gold is typically based entirely on price appreciation. Moreover, an investment in gold carries unique costs. As it is a physical asset, it requires storage and insurance costs. And, while gold is traditionally thought of as a safe asset, it can be highly volatile and drop in price.
Taking into consideration these factors, gold works best as part of a diversified portfolio, particularly when it is acting as a hedge against a falling stock market. Let’s take a look at how gold has held up over the long term.
Key Takeaways
- Gold has long been considered a durable store of value and a hedge against inflation.
- Over the long run, however, both stocks and bonds have outperformed the price increase in gold on average.
- Nevertheless, over certain shorter time spans, gold may come out ahead.
- Gold tends to rise during periods of high inflation and geopolitical uncertainty.
- Gold reached an all-time high of nearly $2,075 in 2020 as the COVID-19 pandemic spread, and it spiked again above $2,000 per ounce during the Russia-Ukraine conflict in early 2022.
Gold vs. Stocks and Bonds
When evaluating the performance of gold as an investment over the long term, it really depends on the time period being analyzed. For example, over certain 30-year periods, stocks have outperformed gold and bonds, but over some 15-year periods, gold has outperformed stocks and bonds.
From 1990 to 2020, the price of gold increased by around 360%. Over the same period, the Dow Jones Industrial Average (DJIA) gained 991%. If we look now at the 15-year period from 2005 to 2020, the price of gold increased by 330%, roughly the same as the 30 years considered above. Over the same period, the DJIA increased by only 153%. Then, if we only consider the years 2021 and 2022, gold has outperformed stocks as geopolitical uncertainty and inflation increased worldwide.
So, over the longer term, stocks seem to outperform gold by about 3-to-1, but over shorter time horizons, gold may win out. Indeed, if we go way back to the 1920s through today, stock returns blow gold away.
$2,075
Gold reached an all-time high of $2,074.88 per ounce in August 2020 amid the COVID-19 pandemic before cooling off. It again rose above $2,000 in March 2022 in response to the Russian invasion of Ukraine, but it hadn’t yet surpassed the 2020 high as of January 2023.
Turning to bonds, the average annual rate of return on investment-grade corporate bonds going back to the 1920s through 2020 is around 5%. This indicates that over the past 30 years, corporate bonds have returned around 330%, similar to gold. Over a 15-year period, the return on bonds has been lower than that of both stocks and gold.
A Historical Perspective
To gain a historical perspective on gold prices, from January 1934, with the introduction of the Gold Reserve Act, to August 1971, when President Richard Nixon closed the U.S. gold purchase window, the price of gold was effectively set at $35 per ounce.
Prior to the Gold Reserve Act, President Franklin D. Roosevelt had required citizens to surrender gold bullion, coins, and notes in exchange for U.S. dollars. This effectively made investing in gold extremely difficult, if not impossible and futile, for those who did manage to hoard or conceal quantities of the precious metal.
Using the set gold price of $35 and the price of $2,000 per ounce as of the first quarter (Q1) of 2022, a price appreciation of approximately 5,700% can be computed for gold. From 1971 to Q1 2022, the DJIA has appreciated in value by around 4,500%.
What is the average return on gold investments?
Gold returns vary depending on the time period under consideration. From January 1971 (when the dollar became unlinked to gold) to December 2019, gold had average annual returns of 10.6%. Over the same period, global stocks returned 11.3%. The annual average return of gold in 2020 was 24.6%, which was the second-highest return among a range of assets that year, followed by silver, which had the highest.
Why is there less investment in gold when stocks generate high returns?
In general, gold performs relatively poorly when stocks are in a bull market. One reason is that gold is not an income-producing asset, nor does it represent growth in a particular company or sector. Rather, it is valued for its relative scarcity and its sociohistorical precedent as something of value. Thus, when the economy is growing and corporations are doing well, stocks tend to be more attractive to investors.
Does cryptocurrency outperform gold?
Since Bitcoin (BTC) emerged in 2009, it has greatly outperformed most other asset classes, including gold, rising from less than $1 to several thousands of dollars. Due to its scarcity and fixed and diminishing rate of new supply, many have equated Bitcoin and other cryptocurrencies with a sort of digital gold. However, if we look at a shorter time span—say, over the past two years—then gold has outperformed cryptocurrencies. This is largely due to the bear market that hit Bitcoin and other cryptocurrencies throughout 2022.
The Bottom Line
As with any investment, it’s important to consider the time frame of investing, as well as to study market research to gauge an understanding of how markets are expected to perform. Gold is not a foolproof investment; as with stocks and bonds, its price fluctuates depending on a multitude of factors in the global economy.
With all investment portfolios, diversification is important, and investing in gold can help diversify a portfolio. This is especially important during market declines, when the price of gold will often increase.
FAQs
Gold has been a sought-after commodity for centuries, and a popular component in investment portfolios in modern times. The metal has historically delivered attractive long-term returns, appreciating ~8% on an annual basis over the past 20 years.
Has gold been a good investment over the long term? ›
Although the price of gold can be volatile in the short term, it always has maintained its value over the long term. Through the years, gold has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.
Is it always good to invest in gold? ›
“Gold is considered a safe haven, because it tends to do well in times of economic distress. However, the precious metal is actually pretty volatile, and heavy losses can occur.” The price of gold fell by 20% in late 2020 as the world recovered from the economic shock of the Covid pandemic, for example.
Is gold investment long term or short term? ›
As such, when you add gold to your portfolio, you shouldn't do so as a short-term trade but rather as a long-term protection play. Protect your portfolio from inflation with gold now.
How has gold appreciated over the years? ›
Average annual return of gold and other assets worldwide 1971-2024. Between January 1971 and March 2024, gold had average annual returns of 7.98 percent, which was only slightly behind the return of commodities, with an annual average of eight percent. The annual average return of gold in 2023 was 13.1 percent.
Is gold fund a good investment? ›
Gold prices do not fluctuate as rampantly as equity investments. The price of gold remains more or less stable within a range barring short bursts of price rise owing to macro factors. An effective hedge against inflation, many people invest in gold not only for its shine but also for its investment value.
Is gold one of the best investment? ›
Therefore, gold can be a good investment but it can heavily depend on your personal circ*mstances and the asset's suitability to your portfolio. Gold is not without its risks. Like all financial assets, investing in and trading on gold comes with risks of losing capital.
Are gold coins a good long-term investment? ›
Unlike stocks and many other investments, it generally won't deliver much in short-term returns. Instead, it's better used as a long-term investment — one that can store your wealth and potentially grow it over a period of many years. "Physical gold is a mid- to long-term investment," Ebkarian says.
Will gold lose value over time? ›
Fluctuations in financial markets can also cause volatility in the price of gold. However, because so many investors purchase gold as a safe-haven asset, its value remains relatively constant. Long-term investments in the precious metal are unlikely to experience losses.
Is gold a better investment than stocks? ›
Meanwhile, when stock markets tumble, gold often retains its value or even appreciates, serving as a safe haven for investors. This fundamental difference highlights the role of physical gold as a more stable investment compared to stocks.
Moreover, gold's unique attributes as a tangible and finite resource imbue it with enduring appeal, transcending borders and cultures. While stocks and bonds may fluctuate with market sentiments, gold remains a timeless asset, resilient in the face of economic upheavals and geopolitical tensions.
Has gold ever lost value? ›
It's important to note that gold prices have historically been volatile and have fluctuated quite a bit over time. The price of gold, like any other commodity, is subject to the laws of supply and demand.
Is gold a good investment historically? ›
This means that the price of gold may be less affected by changes in other asset classes, which can help lower overall portfolio risk. Moreover, gold historically has been seen as a hedge against inflation, as it can maintain or increase its value over time, even in the face of rising prices.
How much is 1 oz of gold? ›
What is the 20 year return on gold? ›
Gold: Had 8.86% average return over the last 20 years, often seen as a more stable asset. Stocks: Outperformed gold with 10.27% average return, but can be more volatile.
Is there a downside to investing in gold? ›
There are several risks to investing in gold, including as follows: Price volatility: The price of gold can be volatile, and it may fluctuate significantly over short periods. This can make it difficult to predict its value and can make it a risky investment.
Should I buy gold now or wait 2024? ›
Buy gold before prices rise
While the indicators above are mixed, the bottom line may be that now—April 2024—is the time to buy gold. Multiple industry experts say gold could have a record year, so you'll want to purchase your precious metals before prices soar.
How much gold should I own? ›
Your age, risk tolerance, and portfolio size all play roles in determining how much of the world's most popular precious metal you should have in your home safe. As a general rule, advisors tend to recommend limiting gold to 10% or less of the total value of your investment portfolio.
Is it better to save money or buy gold? ›
Is it better to hold gold or cash? For short-term needs, cash is better due to its unmatched liquidity. For long-term buy-and-hold investments, gold is preferable to protect against inflation and provide portfolio diversification.
Does Dave Ramsey recommend investing in gold? ›
So, the question remains: is diversifying into assets like gold an overreaction or a prudent strategy in today's volatile economic landscape? It's safe to say that Ramsey considers it an overreaction. "Everything on the internet is true," he joked about the rush of people leaving traditional banks to invest in gold.
The bottom line
Investing in 1-ounce gold bars can be a prudent move for those who are looking to diversify their portfolios and safeguard against economic uncertainties. However, it's crucial to approach this investment with a clear understanding of the market, associated costs and the long-term commitment required.
Will gold be worth more in 10 years? ›
Gold is generally not prone to big price swings or high volatility, but it typically keeps growing alongside its utility. This means that forecasting future prices of gold for the next ten years is expected to indicate an increase in value, potentially resulting in profits for those making these predictions.
What is the 20 year return of gold? ›
Gold: Had 8.86% average return over the last 20 years, often seen as a more stable asset. Stocks: Outperformed gold with 10.27% average return, but can be more volatile.
What will gold be worth in 5 years? ›
What will gold be worth in 5 years? Two Jakarta-based commodity analysts forecast that the price of gold could reach as high as $3,000 per ounce in the next five years. While they remain bullish, they cautioned that many factors could affect the price of gold within this timeframe.
What is the downside of buying gold? ›
Con: Gold won't produce income as rapidly as other assets
While stocks and bonds may offer dividends (a share of corporate profits paid to stockholders) and coupon rates (interest paid on bonds), the only way to earn an income by investing in gold is to take advantage of growth in the price of the commodity.
