Gold presents a uniquely versatile investment proposition because of its dual nature as both a consumer good and an investment asset. This means it can deliver effective diversification in periods of financial turmoil while also benefitting from growth in jewellery and technology demand during periods of economic growth.
Unlike equities, gold has historically performed well in periods of financial turmoil, acting as a diversifier and source of liquidity.1
Because gold is a scarce resource with value that doesn’t depend on the creditworthiness of its holder, it has maintained its worth for thousands of years.2 Gold helps investors manage the risks that other financial assets bring; playing a key role in creating a more balanced and stable portfolio.3
Gold’s correlation with stocks helps portfolio diversification in good and bad economic times
Correlation between gold and US stock returns in various environments of stocks’ performance (since 1971)*
* As of 31 December 2020, Correlations computed using weekly returns based on the Bloomberg Commodity Index and the LBMA Gold Price PM since January 1971. The middle bar corresponds to the conditional correlation on S&P 500 weekly returns within two standard deviations. The bottom bar corresponds to the correlation conditional on S&P 500 weekly return falling by more than two standard deviations (or ‘σ’) respectively, while the top bar corresponds to the S&P 500 weekly return increasing by more than two standard deviations. The standard deviations is based on the same weekly returns over the full period.
The perception of gold as a cumbersome, immobile asset is incongruent with the realities of today’s gold market. Gold flows freely, with more than $180bn traded on a daily basis5 — exceeding that of major financial assets (see chart).
Because of its liquidity, gold is useful in times of both expansion and recession. And if investors have illiquid assets that prove difficult to sell, they can still use gold to meet their most immediate needs.
Gold trades more than many other major financial assets
Average daily trading volumes in US dollars*
* Based on estimated one‑year average trading volumes as of 31 December 2019, except the currencies that correspond to March 2019 volumes due to data availability.
** Gold liquidity includes estimates on over‑the‑counter (OTC) transactions and published statistics on future exchanges, and gold‑backed exchange‑traded products. For methodology details visit the liquid section at Goldhub.com
Since 1971, gold’s return has been similar to equities and outperformed bonds.6
In the last 20 years, gold outperformed most major asset classes (see chart).7
In the last 20 years, gold’s global investment demand increased by an average of 15% per year.8
Through its dual nature as a consumer good and investment, gold has historically preserved its value. Unlike fiat currencies, gold can’t be printed, only mined — this explains in good part why it has consistently outperformed all major fiat currencies.9
Gold has outperformed most major asset classes over the past 20 years
Average annual return of key global assets in US dollars*
*Returns from 31 December 2001 to 31 December 2020. Computations in US dollars of total return indices for ICE BofA US 3-Month Treasury Bill Index, Bloomberg Barclays US Agg Total Return Value Unhedged USD, MSCI Daily TR Gross USA USD, MSCI Daily TR Gross EAFE USD, MSCI Daily TR Gross EM USD, Bloomberg Commodity Index Total Return, Hedge Fund Research HFRI Fund Weighted Composite Index, LBMA Gold Price PM USD, S&P Listed Private Equity Total Return Index, FTSE Nareit Equity REITs Total Return Index USD, Bloomberg Barclays Global‑Aggregate Total Return Index Value Unhedged USD, Bloomberg Barclays EM USD Aggregate Total Return Index Value Unhedged, On Goldhub.com: Gold returns.