{"id":9290,"date":"2025-03-07T12:39:02","date_gmt":"2025-03-07T12:39:02","guid":{"rendered":"https:\/\/www.boosst.financial\/insights\/?p=9290"},"modified":"2025-03-29T13:01:27","modified_gmt":"2025-03-29T13:01:27","slug":"you-asked-gold","status":"publish","type":"post","link":"https:\/\/www.boosst.financial\/insights\/you-asked-gold\/","title":{"rendered":"You Asked: Is Gold A Good Investment?"},"content":{"rendered":"
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\u2018You Asked\u2019 is a series of insights from the boosst team.\u00a0You, our clients, have a wonderful ability to ask relevant and thought-provoking questions\u2026 which are often (but not always!) related to financial planning.\u00a0boosst is a trusted source of knowledge and independent advice, so it makes sense that you come to us with a broad range of questions \u2013 which can vary from \u2018Which car should I buy?\u201d to \u201cWhat\u2019s the best way to teach our children about money?\u201d.<\/span><\/h5>\n
This note was written by Tim, James & Ben at Albion, who support the background research and analysis of our investment committee.<\/span><\/h5>\n<\/blockquote>\n

You Asked:<\/span> Is Gold a Good Investment?<\/span><\/b><\/h4>\n

This shiny metal always glistens most brightly when it has just risen in value. In the past 12 months, the price of gold has nearly doubled. Recency bias and the fear of missing out (FOMO) can result in \u2018should it be in my portfolio?\u2019<\/em> type questions.\u00a0 Somewhat bizarrely, investors tend to get excited about assets that have already<\/em><\/strong> risen in value.\u00a0 If you really are going to play a market timing game \u2013 generally not advisable as even the pros do not have any real track record in being able to do so consistently \u2013 a long-term investor should surely be more excited about an asset that has fallen substantially in value, not risen.<\/span><\/p>\n

It is always too easy to jump onto the \u2018it\u2019s done so well, I want some\u2019<\/em> bandwagon. After all, owning a gold-backed ETF is just a few clicks away on the internet, with adverts popping into your eyeliner as soon as you’ve had the thought about Gold, or any other new shiny thing for that matter. <\/span><\/p>\n

The best advice we can give is that switching from an emotional, intuitive brain to a more reflective mindset is always useful to avoid a hasty and potentially costly decision.<\/span><\/strong> Here are a few thoughts around gold that may be instructive or, at the very least, somewhat interesting.<\/span><\/p>\n

Gold is in limited supply (on earth), but does this matter?<\/span><\/h4>\n

If all the gold ever mined were melted into a cube, it would measure just 22 meters on each side.\u00a0 For those of us keen on rugby, the base of the cube would reach from the try line to the 22m line.\u00a0 For tennis fans, the sides of the cube would be as long as a tennis court, give or take a meter.\u00a0 According to the World Gold Council, this represents 216,265 tonnes of gold mined so far.\u00a0 Unmined gold is estimated at around 50,000 tonnes. Investors who think that gold is ‘out of this world’<\/em> would be right. Gold is created in the heart of massive stars during supernova explosions which produce the extreme conditions necessary for the formation of heavy elements like gold. Meteorites often contain small amounts of gold. But does that make it valuable?\u00a0 Warren Buffet, the legendary investor and founder of Berkshire Hathaway does not think so.<\/span><\/p>\n

\u2018Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head\u2026 Gold, however, has two significant shortcomings, being neither of much use nor procreative\u2026 if you own one ounce of gold for an eternity, you will still only own one ounce at its end\u2019.<\/span><\/em><\/p>\n

Warren Buffet, legendary investor, Founder of Berkshire Hathaway<\/span><\/p>\n

Gold has a tarnished record as an inflation hedge<\/span><\/h4>\n

Despite being the only metal that does not corrode, its mythical reputation as a hedge against inflation is somewhat tarnished.\u00a0 The definition of an inflation hedge is an asset that moves in the opposite direction to the effect of inflation, not just an asset that delivers positive after-inflation returns over longer-term periods.\u00a0 Historically, gold has shown mixed results as an inflation hedge. During the 1970s, a period of high inflation in the U.S., gold prices soared, delivering impressive after-inflation returns. However, in other periods, gold’s performance has been less stellar. For example, from 1980 to 1984, despite high inflation, gold prices fell substantially.\u00a0 Other alternatives, such as owning shorter-dated inflation-linked bonds is likely (but not guaranteed) to offer a better direct and more immediate hedge against inflation.<\/span><\/p>\n

Figure 1: Gold prices compared to inflation and other assets\u00a0<\/span><\/h5>\n
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Source: Albion Strategic Consulting (see endnote)<\/em><\/span><\/p>\n

Gold has not performed well against other assets<\/span><\/h4>\n

Gold has not been a particularly strong performer relative to investing in a diversified pool of global companies over the past 50 years, despite its rip-roaring start to the 1970s.\u00a0 After the effects of inflation, \u00a31 turned into \u00a37 of purchasing power for gold, \u00a33 for UK house prices and \u00a316 for global companies. It would have been extremely painful to remove global stocks from a portfolio to make way for gold.\u00a0 In addition, the gold price was quite a lot more volatile over the whole period than that of global stock markets, by about a quarter in fact. By including a diversified pool of global companies within boosst portfolios, investors have seen better returns and less volatility than those who opted for gold.<\/span><\/p>\n

Gold is a good store of value if you have a 2,000-year horizon, but not in the shorter term<\/span><\/h4>\n

Over the period from January 1980 to July 1999, gold lost around a staggering 80% of its purchasing power, making it a very untrustworthy store of value even over decades. Over the same period, the purchasing power of global stocks rose seven-fold.\u00a0 Over millennia gold does, however, seem to be a good store of value!\u00a0 For example, 34 ounces of gold would have paid the salary of a Roman centurion or a British Army captain today.\u00a0 A pair of shoes then, and now, cost around 0.02 ounces of gold, whilst two Roman togas or a suit today would cost about the same[1]<\/span><\/a>. \u00a0Interesting but largely irrelevant to investors.<\/span><\/p>\n

Timing when to invest in gold is tricky \u2013 just ask Gordon Brown<\/span><\/h4>\n

In summary, gold has no income stream, making it hard to value.\u00a0 Supply and demand changes over time, depending upon a wide range of factors, which are largely unpredictable.\u00a0 Its longer-term return has been materially less than that of global stocks.\u00a0 Its mythical status as a hedge against inflation is wearing a bit thin. It is hard to make a case for it as a permanent part of a portfolio.\u00a0 That implies that an investor needs to time when to be in or out of gold, which has proven to be extremely difficult. Just ask Gordon Brown, the former Chancellor of the Exchequer in the UK. Between 1999 and 2002, he sold approximately\u00a0395 tonnes\u00a0of the UK’s gold reserves at average price of\u00a0USD275 per ounce, a multi-decade low in the gold price, leading to significant criticism and the term \u2018Brown’s Bottom\u2019<\/em>! If he had sold the gold at today\u2019s prices, it would have been worth around ten times as much.\u00a0 This is probably one of the biggest single market timing mistakes of all time. \u00a0<\/span><\/p>\n

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Important notes<\/span><\/h5>\n

You know how this works. This is a purely educational note to discuss some general investment related issues. It does not in any way constitute investment advice or arranging investments. It is for information purposes only; any information contained within is the opinion of the authors, which can change without notice. Past financial performance is no guarantee of future results.<\/span><\/p>\n

Use of Morningstar Direct\u00a9 data<\/span><\/h5>\n

\u00a9 Morningstar 2025. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and\/or its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction.\u00a0<\/span><\/p>\n

Products referred to in this note<\/span><\/h5>\n

Where specific products are referred to, it is solely to provide educational insight into the topic being discussed. Any analysis undertaken does not represent a recommendation of any product under any circumstances and should not be construed as such.<\/span><\/p>\n

Asset classes used<\/span><\/h5>\n\n\n\n\n\n\n\n
Asset class<\/strong><\/span><\/td>\nData series<\/strong><\/span><\/td>\n<\/tr>\n
Global equities<\/span><\/td>\nAlbion World Stock Market Index[2]<\/span><\/a><\/span><\/td>\n<\/tr>\n
UK house prices<\/span><\/td>\nNationwide House Price index<\/span><\/td>\n<\/tr>\n
Gold<\/span><\/td>\nGold price in GBP<\/span><\/td>\n<\/tr>\n
UK inflation<\/span><\/td>\nUK RPI<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

[1]\u00a0<\/span> Reitzer, L., (2023) Wages & Prices of Daily Goods in Ancient Rome. Wages & Prices of Daily Goods in Ancient Rome \u2013 neutralhistory.com<\/a>.\u00a0<\/span><\/p>\n

[2]<\/span> https:\/\/smartersuccess.net\/indices<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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