As of 31 December 2018. Computations in US dollars of total return indices for ICE 3-month Treasury, Bloomberg Barclays US Bond Aggregate, MSCI US, EAFE and EM indices, Bloomberg Commodity Index and spot for LBMA Gold Price PM. For compounded annual growth rates see Appendix II.
Additionally, investors have embraced gold-backed ETFs and similar products to get exposure to gold. Gold-backed ETFs have amassed more than 2,400 tonnes (t) of gold worth US$100 billion (bn) since they were first launched in 2003.6
And since 2010 central banks have been net buyers of gold in order to expand their foreign reserves as a means of diversification and safety.
Well above inflation
During the Gold Standard, and subsequently the Bretton Woods system, when the US dollar was backed by and pegged to the price of gold, there was a close link between gold and US inflation. But once gold became free floating US inflation was not its main price driver.
Sure enough, gold returns have outpaced the US consumer price index (CPI) over the long run due to its many sources of demand. Gold has not just preserved capital, it has helped it grow.
Gold has also protected investors against extreme inflation. In years when inflation has been higher than 3% gold’s price has increased by 15% on average. Additionally, research by Oxford Economics shows that gold should do well in periods of deflation.
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council