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Gold has delivered strong long-term returns


In the first three months of 2020 the price of gold rose by 4% in USD terms, and almost 20% in AUD terms, strongly outperforming global equity markets, which suffered some of their fastest ever falls. This includes the Australian equity market, which declined by almost 25%, its largest quarterly fall on record.

These market dynamics have stimulated significant interest in gold bullion, with the yellow metal finding favour as a highly liquid, zero credit risk safe haven asset.

Whilst market and investor attention on the gold market often picks up in periods of financial market volatility and/or heightened economic uncertainty, the positive role that gold can play in a portfolio is not limited to such environments, with the yellow metal generating strong returns over the long-term.

From the beginning of this century the price of gold rose from under AUD 450 per ounce to more than AUD 2,150 per ounce at the end of 2019. This amounts to an annual average gain of more than 8.0% across the past 20 years.

Not only has the precious metal performed well in absolute terms during this time, but in relative terms as well. The returns on gold have either matched, or in many cases exceeded, the returns generated by other asset classes.

This is illustrated in the chart and table below, which highlight the returns delivered by gold over multiple periods to the end of 2019, as well as the returns delivered by other asset classes including Australian shares and housing over the same timeframe.

Chart: Asset class returns (%) over multiple time periods to end 2019

With returns of 18.86%, 10.63% and 8.32% per annum over the last 1, 3 and 5 years, gold has almost matched returns delivered by equity markets, and comfortably outperformed defensive assets like cash and bonds over this time period.

Over the past 10 years, gold returned almost 6% per annum, again bested only by share markets, with much of that share market outperformance owing to the recovery of equity markets from the more than 50% declines they suffered during the global financial crisis (GFC).

Over 15 years no equity, property, bond or diversified investment strategy has matched the rise in the gold price, with the yellow metal delivering returns of almost 9.5% per annum over this time period.

Strong returns not limited to the last 20 years.

The strong performance of gold is not contained to the new millennium alone, with the yellow metal, despite its short-term volatility, delivering an annual average price growth of almost 9% since the start of the 1970s. This can be seen in the table below, which plots the end of year gold price in USD per troy ounce.

Gold’s upward trajectory in the long-run is highlighted clearly in the above chart, with the price predominantly driven by investment flows (both physical bar and coin demand as well as ETF buying), jewellery demand and central bank buying. 

Given the current monetary environment investors face, and the ongoing economic and financial market risks, there is little reason to believe the long-term upward trend in gold prices will change soon.

The yellow metal looks set to remain an important asset in well-diversified portfolios.

Disclaimer

Past performance does not guarantee future results.
The information in this article and the links provided are for general information only and should not be taken as constituting professional advice from The Perth Mint. The Perth Mint is not a financial adviser. You should consider seeking independent financial advice to check how the information in this article relates to your unique circumstances. All data, including prices, quotes, valuations and statistics included have been obtained from sources The Perth Mint deems to be reliable, but we do not guarantee their accuracy or completeness. The Perth Mint is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this article.




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