A recent study confirms gold outperforms stocks in the long run.
Investors new to the gold market sometimes wonder how profitable gold is in the long run. We’ve all heard that gold is a long-term investment, yet its role of preserving wealth sometimes overshadows the metal’s ability to increase it.
A recent study conducted by Telegraph Money reaffirms what everyone who has invested in gold already knows – the metal performs exceptionally well over the long run, even outperforming the vaunted stock market during longer stretches of time.
The Telegraph’s analysis pitted gold against the FTSE World index over different time frames, the most significant of which span between 1999 and today. Using data from FE Analytics, the media outlet examined four portfolios with different allocations to gold: 95% shares/5% gold, 90% shares/10% gold, 80% shares/20% gold and 50% shares/50% gold.
The result was predictable to those familiar with the metal – gold posted significant gains over the longest time period, with the portfolio with the highest gold allocation returning the most.
The analysis explained how the metal holds its price during many scenarios and outperforms most assets during times of crisis and uncertainty. “Gold maintained its price during the technology-fueled stock market collapse of 2000-2003 and then gained further during Iraq war and in response to corporate scandals such as energy giant Enron’s collapse. It soared ahead of the FTSE World index when the global financial crisis hit, and posted its biggest gains in the nervy years that followed,” said the article.
Although even a small allocation to the yellow metal proved profitable, portfolios with less stocks and more gold gained the most. “Someone in the [5%] gold portfolio would be up [228%] since June 1999 before fees, compared to [321%] for the [50%] gold portfolio,” explained the Telegraph.
Of course, in order to experience these gains, investors needed to stick with the metal as opposed to selling during dips in prices fueled by a seemingly-strong economy or a soaring stock market. It has been said that gold is a volatile asset, yet the Telegraph’s study shows that the metal’s downswings are momentary and that, ultimately, few other assets can provide as much reliability.
Over shorter time periods, such as the one from 2008 to today, gold was outperformed by stocks, yet not by a significant margin. “From September 14, 2008, the day before the collapse of Lehman Brothers, the [5%] gold portfolio has returned [154%], compared to [124%] for the [50%] gold weighting,” said the Telegraph, proving that those with heavy allocations in gold can still experience sizeable returns over the short term.