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Investors have long considered gold a beneficial asset during periods of uncertainty. Yet, historically, it has generated long-term positive returns in both good and bad economic times. Its diverse sources of demand give gold a particular resilience and the potential to deliver solid returns in various market conditions (Figure 1). Gold is, on the one hand, often used as an investment to protect and enhance wealth over the long term, but on the other hand it is also a consumer good, via jewellery and technology demand. During periods of economic uncertainty, it is the counter-cyclical investment demand that drives the gold price up. During periods of economic expansion, the pro-cyclical consumer demand supports its performance. Combined these factors give gold the ability to provide stability under a range of economic environments.
Figure 1: Gold’s sources of demand
Average annual net demand = 3,140 tonnes (approx.. US$ 181bn)
Figure 1: Gold’s sources of demand
Figure 1: Gold’s sources of demand
Average annual net demand = 3,140 tonnes (approx.. US$ 181bn)
*Based on 10-year average annual net demand estimates ending in 2022. Includes: jewellery and technology net of recycling, in addition to bars & coins, ETFs and central bank demand which are historically reported on a net basis. It excludes over-the-counter demand owing to limitations in data availability.
** Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology.
Source: Metals Focus, Refinitiv GFMS, World Gold Council
Looking back over half a century, the price of gold in US dollars has increased by nearly 8% per year since 1971 when the US gold standard collapsed. Over this period, gold’s long-term return is comparable to equities and higher than bonds. Gold has also outperformed many other major asset classes over the past 3, 5, 10 and 20 years (Chart 1).
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*Returns from 31 December 2002 to 31 December 2022
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Returns from 31 December 2002 to 31 December 2022
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Strat Ass 2023: Chart 1 [GBP]
Annualised return over the past 3, 5, 10 and 20 years*
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Returns from 31 December 2002 to 31 December 2022
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Returns from 31 December 2002 to 31 December 2022
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Returns from 31 December 2002 to 31 December 2022
Chart 1: Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Annualised return over the past 3, 5, 10 and 20 years*
Gold has performed well over the past 3, 5, 10 and 20 years, despite the strong performance of risk assets
Sources:
Bloomberg,
Shanghai Gold Exchange,
World Gold Council; Disclaimer
Moreover, the diversity of its sources of demand, help to make gold a less volatile asset than some equity indices, other commodities or alternatives (Chart 2).
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
COMEX,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
COMEX,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in GBP between 31 December 2002 and 31 December 2022. Indices used: S&P UK Investment Grade Corporate Bond Index, FTSE All World Ex-UK Index, Bloomberg Commodity Index, LBMA Gold Price PM, FTSE 100 Index, MSCI Daily Gross EM, S&P Listed Private Equity Index, FTSE Nareit Equity REITs Index, Bloomberg WTI Crude Oil.
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
COMEX,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in EUR between 31 December 2002 and 31 December 2022. Indices used: Bloomberg EuroAgg Total Return Index, LBMA Gold Price PM, FTSE Developed Index, Bloomberg Commodity Index, MSCI Daily Gross EM, FTSE Eurobloc Index, S&P Listed Private Equity Index, FTSE Nareit Equity REITs Index, Bloomberg WTI Crude Oil.
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
COMEX,
ICE Benchmark Administration,
World Gold Council; Disclaimer
Annualised volatilities are computed based on daily returns in yen between December 2002 and December 2022. Indices used: BPI JGB Index, TIBOR 3 Month, Nikkei 225 Index, Bloomberg Commodities Index, Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index, MSCI Daily Gross EM, Bloomberg WTI Crude Oil and LBMA Gold Price PM.
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
Annualised volatility is computed based on daily returns in Australian dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index.
Chart 2: Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Gold has been less volatile than many equity indices, alternatives and commodities because of its scale, liquidity and diverse sources of demand
Average daily volatility of several major assets since 2002*
Sources: Bloomberg, COMEX, ICE Benchmark Administration, World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in US dollars between 31 December 2002 and 31 December 2022. Indices used: Bloomberg Global Aggregate Bond Index, MSCI Daily Gross World Index; MSCI Daily Gross EM; MSCI USA Index; LBMA Gold Price PM, Bloomberg Commodity Index, Bloomberg WTI Crude Oil; S&P Listed Private Equity Index; FTSE Nareit Equity REITs Index USD.
Sources:
Bloomberg,
Shanghai Gold Exchange,
World Gold Council; Disclaimer
*Annualised volatility is computed based on daily returns in RMB between 31 December 2002 and 31 December 2022. Indices used: CSI China Treasury Index, CSI China Agg Bond Index, Au9999, Bloomberg Commodity Index, MSCI Daily Gross World Index, MSCI Daily Gross EM, S&P Global REITs Index, CSI300 Stock Index, Bloomberg WTI Crude Oil.
Beating inflation, combating deflation
Gold has long been considered a hedge against inflation and the data confirms this: since 1971, it has outpaced the US and world consumer price indices (CPI). Gold also protects investors against high inflation. In years when inflation was between 2%-5%, gold’s price increased 8% per year on average. This number increased significantly with even higher inflation levels (Chart 3). Over the long term, therefore, gold has not just preserved capital but also helped it grow.
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in GBP as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in GBP for ‘gold’: LBMA Gold Price PM and ‘inflation’: UK CPI since January 1971
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in EUR as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in EUR for ‘gold’: LBMA Gold Price PM and ‘inflation’: Euro zone CPI since January 1975
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in yen for ‘gold’: LBMA Gold Price PM and ‘inflation’: Japan CPI since January 1971
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in Australian dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: Australian CPI since January 1971
Chart 3: Gold historically rallies in periods of high inflation
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Gold historically rallies in periods of high inflation
Gold nominal and real returns in US dollars as a function of annual inflation*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM and ‘inflation’: US CPI since January 1971
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Based on y-o-y changes in RMB for ‘gold’: LBMA Gold Price PM and ‘inflation’: China CPI since January 1990
Our research also shows that gold should do well in periods of deflation. Such periods are characterised by low interest rates, reduced consumption and investment, and financial stress, all of which tend to foster gold demand.
Store of value
Historically, major currencies were pegged to gold. That changed with the unravelling of the US gold standard in 1971 and the eventual collapse of the Bretton Woods system. Since then, with few exceptions, gold has significantly outperformed all major currencies and commodities as a means of exchange. And although this outperformance was particularly marked immediately following the end of the gold standard, gold has clearly continued to outperform most major currencies in the more recent past (chart 4). A key factor behind this robust performance is that gold mine production has grown slowly over time – increasing by approximately 1.7% per year over the past 20 years.
Chart 4: The purchasing power of major currencies and commodities has significantly eroded relative to gold
Strat Ass 2023: Chart 4
Value of currencies and broad commodities relative to gold (January 2000 = 100)*
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. Relative value between ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index, and major currencies since 2000. Value of commodities and currencies measured in ounces of gold and indexed to 100 in January 2000.
By contrast, fiat money can be printed in unlimited quantities to support monetary policy, as exemplified by the quantitative easing measures in the aftermath of the Global Financial Crisis (GFC) and the COVID-19 pandemic. In these crises, many investors turned to gold in order to hedge themselves against currency devaluation and preserve their purchasing power over time.
In fact, the rapidly increasing US money supply and the low-rate environment fostered an optimal environment for gold to perform well (Chart 5).
Chart 5: Gold prices have tracked the expansion of US money supply
Gold prices have tracked the expansion of US money supply
US M2 growth, US CPI and gold price*
Gold prices have tracked the expansion of US money supply
US M2 growth, US CPI and gold price*
*As of 31 December 2022. US CPI and US M2 were constructed using data from January 1972 and re-based to 100 on January 1972. Gold based on the LBMA Gold Price PM USD.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 31 December 2022. US CPI and US M2 were constructed using data from January 1972 and re-based to 100 on January 1972. Gold based on the LBMA Gold Price PM USD.
