Gold’s Real Return: Higher Than Expected

Gold has long been recognized as a valuable asset for risk management, thanks to its robust hedging characteristics. However, its potential as a high-return investment is often underestimated. Traditionally, research on gold has primarily viewed it as a store of value, moving in line with inflation and consumer prices. Yet, this approach has likely undervalued gold’s performance by focusing too narrowly on financial demand or outdated Gold Standard-era data.

New insights show that gold’s real long-term return has actually outpaced inflation over the past 50 years, aligning more closely with global GDP growth rather than just inflation. By using a unique framework, known as the Gold Long-Term Expected Return (GLTER), analysts can capture gold’s multifaceted demand sources — from jewelry and technology to central bank reserves and private investment. This model considers both economic drivers (like global GDP) and financial influences (such as global stock and bond market capitalizations).

In the short term, financial investors often influence gold’s price, but over the long haul, broader demand factors drive its value. With this balanced approach, gold’s potential as a high-yielding asset becomes more evident, making it an attractive consideration for portfolio growth alongside its traditional role as a hedge against risk.

Sources:

Gold's long-term expected return, World Gold Council, Oct 17 2024