Posted by on July 29, 2013
Interesting article in last Sunday’s NY Times about investing in gold. The author notes that over the long-term gold has barely kept pace with inflation, earning an inflation-adjusted return of about 1.1% from 1836 to 2011. In comparison you can expect to earn 1.0% from Treasury Bills, 2.9% from long-term bonds and 7.4% from stocks over “the long term” (although it appears these returns are not calculated over the same extremely long-term time period as the quoted gold returns.) In addition gold is very volatile.
Barring the fact that Minkew is quoting gold’s return over a 175 year period – much longer than anyone’s life expectancy – I agree that holding gold as an investment is not as much of a slam-dunk as many investors think. I have found those who like the idea tend to think of gold as a hedge against stocks, something to add “safety” to the portfolio. But it might not give you that warm fuzzy feeling when you see its returns see-sawing. In the past 3 years gold (as measured by the SPDR Gold shares) has been about 56% more volatile than the S&P 500 Index (as measured by iShares Core S&P 500 Index ETF.) This year it is down about 26%. The S&P 500 is up 13.5% in the same period, showing how uncorrelated the two investments can be. But you must be willing to hold gold through the ups and downs and accept the possibility of low long-term returns to be a true gold believer.
