Investors more reticent of precious metals often argue that investment gold offers no return, that it is a “barbaric relic,” or that, compared to other assets such as stocks or treasury bonds, it has nothing to do with it. However, its security and ability to preserve purchasing power are beyond doubt. And in terms of its profitability, especially in the long term, neither: since 1970, the ounce of gold has appreciated more than 3,500%.
In terms of investment, physical gold has to compete with a series of assets that, on many occasions, shine brighter and appreciate faster, attracting the attention of investors. This is the case, for example, of stocks that allow faster gains at the cost of greater volatility.
Long-Term Gold Returns
Coolly analyzing the data, gold shows its greatest advantages in the long term. According to statistics published by the World Gold Council, gold was valued at a mere $36.2 an ounce on January 1, 1970 ( London Bullion Market Association price ). Almost half a century later, on January 1, 2019, its price exceeded $1,300 an ounce, plus a 3,500% rise (see chart).
It must also be taken into account that in 1971 the then-president of the United States, Richard Nixon, decided to end the convertibility of the dollar into gold, which had been established in the Bretton Woods Agreements. Since then, the metal has appreciated more than 10% a year.
Even allowing for the impact of inflation in the intervening years, the appreciation of the precious metal has been spectacular. Its maximum price was reached on September 5, 2011, at $1,895 an ounce. On two other occasions (February and October 2012), the ounce of gold once again touched $1,780 an ounce.
Since then, although there has been a certain drop, the price of the metal has always remained above $1,100 an ounce, except for a couple of specific moments throughout 2015.
Gold revaluation in the last ten years
Limiting the evolution a little more, in the last ten years, the revaluation of the metal has been more than 75%, going from 987.8 dollars an ounce on January 1, 2009, to more than 1,300 dollars that registered on January 1.
All of this shows that, against the arguments that gold does not offer returns like stocks or bonds, the metal uses one of its main qualities: its ability to maintain purchasing power despite the passage of time.
Given such data, it is not surprising to see that, since 2001, the global demand for investment gold has increased at an annual average of 15%. Furthermore, in recent years, the experiences acquired during the 2008 crisis have made investors mature and focus more on proper risk management, in which gold plays an increasingly important role.
The comparison between gold and the main assets that attract investors’ attention also shows that the precious metal is a good bet, especially for the long term.
Since 1971, the average annual revaluation of gold in dollars has been 10.45%, a percentage very similar to that of the rest of the assets with which they compete.
Investment gold vs. inflation and currencies
The revaluation of gold throughout these years has also allowed it to surpass the US consumer price index because it has diverse sources of demand. In this way, gold has not only helped preserve capital but has also helped it grow.
Following inflation, gold has also become a staple of inflation protection. Thus, according to data from the World Gold Council, in the years in which gold has exceeded 3%, gold has appreciated by more than 15%.
The reason for this performance of gold is that the metal has a very limited stock that has barely grown, in terms of mining production, by 1.6% per year over the last two decades. On the other hand, “fiat” currencies can be issued without limit by the respective central banks to support their monetary policies since they are not backed by anything other than trust in their governments.