The Case for Gold: Protect and Build Your Wealth
Why buy gold?
Gold has been a proven investment for thousands of years. Why? Because gold holds its value for generations and is universally recognized as a store of wealth.
Today, gold offers investors four key benefits:
- Long-term returns: gold delivers positive returns in good times and bad, gaining ground particularly during periods of high inflation.
- Diversification: gold behaves differently from other assets, holding its own even when other assets such as bonds and the stock market are under pressure.
- Portfolio protection: gold makes portfolios less risky and helps generate higher returns.
- Liquidity: the gold market is large and accessible so gold can be bought and sold with ease, even when conditions in other markets are tough.
Delivering Long-Term Returns and Beating Inflation
Gold generates robust returns across economic cycles. Looking back over the past 50 years, gold prices increased by an average of nearly 11% per year1, comparable to the returns from U.S. equities and considerably better than U.S. bonds. Gold consistently outpaces inflation, too2. In periods of high inflation — when consumer prices are increasing by 5% or more — gold prices on average have gained over 20%3.
Chart 1: Gold historically rallies in periods of high inflation
1971-2022
Source: Bloomberg, Bureau of Labour Statistics, ICE Benchmark Administration, World Gold Council
Based on y-o-y changes of the LBMA Gold Price, Bloomberg Commodity Index and U.S. CPI between 1971 and 2022. Number of observations for each tranche: Low = 12, Moderate = 22, High = 12. The buckets were determined based on a 2% Fed target rating, a recent CPI number above 5% and a proportional amount of observations in each tranche. The results are consistent when adjusting tranche levels moderately.
Providing Real Diversification
Investors want protection in tough times — and, historically, this is when gold shines, moving higher when equities and other riskier assets are under pressure. Unusually though, gold can also move higher when these assets are in positive territory. This ability to perform in good times and bad is based on gold’s varied demand and makes it a uniquely efficient asset for an investment portfolio.
Gold Demand 2021
Protecting Your Portfolio
Gold can make a material difference to investment portfolios’ returns because portfolios that include gold are less likely to experience extreme highs and lows.
Outperforming the U.S. Dollar
Gold has significantly outperformed the U.S. dollar and other major currencies for decades. In the 21st century alone, major currencies have depreciated by more than 90% against gold and, over the past 100 years, they have lost 99% of their value compared to gold. Simply put, gold helps investors to preserve their purchasing power down the generations.
Easily Traded
The is large, global and highly liquid so investors or their beneficiaries can buy or sell gold easily, even when financial markets are under pressure.
Key Takeaways
- Gold is an asset unlike any other. Scarce and highly prized, it has delivered average annual returns of 11% over the past 50 years.
- Gold comes into its own during difficult times, delivering particularly strong gains when inflation is high.
- Yet gold performs well during good times too, when demand for gold in jewelry and technology increases.
- The gold market is highly liquid. Investors can buy and sell gold whenever they choose, including in periods of extreme stress in the financial markets.
- Gold helps to make investment portfolios less risky, even as it enhances investment returns.
- Adding between 6% and 10% asset allocation to gold in the average U.S. portfolio has made a tangible improvement to performance and boosted returns on a sustainable, long-term basis
The Complete Guide to Buying Gold Safely
For more detailed information on gold products and finding the right gold seller for you, download our full investor guide. Read this article on The World Gold Council.
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1 Average annualized returns in U.S. dollars from January 1971 to December 2021.
2 Based on average annual CPI changes for the US (3.94%) and world (10.4%) as measured by the IMF from December 1971–December 2021.
3 The 15 instances U.S. CPI was higher than 4%, the average gold return was 21%, while in the 10 instances that U.S. CPI was higher than 5%, gold increased 27% on average.
About the World Gold Council
The World Gold Council is the market development organization for the gold industry. Our purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the .
We develop gold-backed solutions, services and products, based on authoritative market insight, and we work with a range of partners to put our ideas into action. As a result, we create structural shifts in demand for gold across key market sectors. We provide insights into the international gold markets, helping people to understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society.
Based in the UK, with operations in India, China, Singapore and the USA, the World Gold Council is an association whose members comprise the world’s leading gold mining companies.
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Diversification does not guarantee any investment returns and does not eliminate the risk of loss. Past performance is not necessarily indicative of future results. The resulting performance of any investment outcomes that can be generated through allocation to gold are hypothetical in nature, may not reflect actual investment results and are not guarantees of future results. WGC does not guarantee or warranty any calculations and models used in any hypothetical portfolios or any outcomes resulting from any such use. Investors should discuss their individual circumstances with their appropriate investment professionals before making any decision regarding any Services or investments.
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