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Gold: More than Just a Hedge

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Conventional wisdom holds that gold is a good store of value, and provides a hedge of protection against inflation and economic upheaval. But a close look at the data reveals gold offers a long-term growth trajectory comparable to other financial asset classes.

In fact,  as we reported in August, gold has actually outperformed the stock market so far this century. If we index both gold and the S&P 500 to 100 as of Dec. 31, 1999, gold had returned 86% more than the market.

Over the past 17 years, the S&P 500 has undergone two major contractions, both of them resulting in a loss of around 40%. Gold, meanwhile, has held its value well, boosting its appeal as a portfolio diversifier.”

Analysis by the World Gold Council shows that gold actually compares favorably with a number of financial assets when you analyze growth, whether you look at a 10-year, 20-year, or even a 40-year time span.

Looking over the last 10 years, gold grew 7.7%. The only asset class with stronger growth was US stocks,  coming in at 8.2%. EAFE (Europe, Australasia, Far East) stocks, the US Bond Aggregate  and US cash all showed significantly lower growth. Commodities actually fell 3.7% during that time. Bonds were the closest rival to gold, but only grew 4.4%.

Going back 20 years, we see a very similar dynamic. Gold remains the second best asset class for growth only behind US stocks. Other financial assets show better results than we saw over the 10-year time frame, but gold still rises above the rest.

Looking back to 1971, gold continues to hold its own. Gold has grown 10.6% in that time span. Both US and foreign stocks slightly outperform gold, with EAFE stocks leading the way at 11.3%. Gold outperformed bonds, cash and commodities.

The World Gold Council included this analysis in a recent report on sovereign wealth funds, arguing that they should include gold.

Gold has unique qualities that can meet the needs of sovereign wealth funds. It features a long-term pro-growth trajectory without sacrificing its short-term diversification and safe haven characteristics. It has virtually no correlation with funding sources like oil, while continuing to be one of the world’s most liquid asset classes. As a new era of uncertainty dawns on global markets, the evolving nature of gold promises to give it a pivotal role in enhancing the wealth of nations.”

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
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