Gold’s strategic role

20 January, 2022

Our analysis shows gold is a clear complement to equities, bonds, and broad-based portfolios. A store of wealth and a hedge against systemic risk, currency depreciation and inflation, gold has historically improved portfolios’ risk-adjusted returns, delivered positive returns, and provided liquidity to meet liabilities in times of market stress. 

A source of returns

Investors have long considered gold a beneficial asset during periods of uncertainty. Historically, it has generated long-term positive returns in both good and bad economic times. Looking back almost half a century, the price of gold in US dollars has increased by an average of nearly 11% per year since 19711 when the gold standard collapsed.2 Over this period, gold’s long-term return is comparable to equities and higher than bonds.3 Gold has also outperformed many other major asset classes over the past five, 10 and 20 years (Chart 2 and Chart 3). 

This duality reflects the diverse sources of demand for gold and differentiates it from other investment assets. Gold is often used to protect and enhance wealth over the long term as it is no one’s liability, and it works as a means of exchange due to its global recognition. 

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in US dollars*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in US dollars*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council *Returns from 31 December 2001 to 31 December 2021. Computations in US dollars for ‘cash’: ICE BofA US 3-Month Treasury Bill Index; ‘US bonds’: Bloomberg Barclays US Agg Total Return Value Unhedged USD; Bloomberg Barclays US Treasury Total Return Unhedged USD; ‘Global bonds’: Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged USD; ‘EM bonds’: Bloomberg Barclays EM USD Aggregate Total Return Index Value Unhedged; ‘US equities’: MSCI Daily TR Gross USA USD; EAFE equities: MSCI Daily TR Gross EAFE USD; ‘EM equities’: MSCI Daily TR Gross EM USD; ‘commodities’: Bloomberg Commodity Index Total Return; ‘hedge funds’: Hedge Fund Research HFRI Fund Weighted Composite Index; ‘REITs’: FTSE Nareit Equity REITs Total Return Index USD; and ‘gold’: LBMA Gold Price PM USD.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in US dollars for ‘cash’: ICE BofA US 3-Month Treasury Bill Index; ‘US bonds’: Bloomberg Barclays US Agg Total Return Value Unhedged USD; Bloomberg Barclays US Treasury Total Return Unhedged USD; ‘Global bonds’: Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged USD; ‘EM bonds’: Bloomberg Barclays EM USD Aggregate Total Return Index Value Unhedged; ‘US equities’: MSCI Daily TR Gross USA USD; EAFE equities: MSCI Daily TR Gross EAFE USD; ‘EM equities’: MSCI Daily TR Gross EM USD; ‘commodities’: Bloomberg Commodity Index Total Return; ‘hedge funds’: Hedge Fund Research HFRI Fund Weighted Composite Index; ‘REITs’: FTSE Nareit Equity REITs Total Return Index USD; and ‘gold’: LBMA Gold Price PM USD.

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold performance has been strong in recent decades, supported by key structural changes

Average annual return of key global assets in GBP*

Gold performance has been strong in recent decades, supported by key structural changes
Average annual return of key global assets in GBP*
*Returns from 31 December 2001 to 31 December 2021. Computations in British Pound Spot of total return indices for LBMA Gold Price PM GBP, Barclays Benchmark Overnight GBP Cash Index, S&P U.K. Investment Grade Corporate Bond Index Total Return, Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged USD, FTSE All-World ex UK Total Return Index GBP, MSCI Daily TR Gross EM USD, MSCI ACWI ex USA Gross Total Return USD Index, FTSE 100 Total Return Index GBP ,Bloomberg Commodity Index Total Return. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in British Pound Spot of total return indices for LBMA Gold Price PM GBP, Barclays Benchmark Overnight GBP Cash Index, S&P U.K. Investment Grade Corporate Bond Index Total Return, Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged USD, FTSE All-World ex UK Total Return Index GBP, MSCI Daily TR Gross EM USD, MSCI ACWI ex USA Gross Total Return USD Index, FTSE 100 Total Return Index GBP ,Bloomberg Commodity Index Total Return.

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in Euros*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in Euros*
*Returns from 31 December 2001 to 31 December 2021. Computations in Euro Spot of total return indices for Barclays 3 month Euribor Cash Index, Bloomberg Barclays EuroAgg Total Return Index Value Unhedged EUR, EURO STOXX 50 Net Return EUR, MSCI World ex Europe Net Total Return EUR Index, MSCI Daily TR Gross EM USD, Bloomberg Commodity Index Total Return, Bloomberg Barclays EU Govt All Bonds Total Return, LBMA Gold Price PM USD Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in Euro Spot of total return indices for Barclays 3 month Euribor Cash Index, Bloomberg Barclays EuroAgg Total Return Index Value Unhedged EUR, EURO STOXX 50 Net Return EUR, MSCI World ex Europe Net Total Return EUR Index, MSCI Daily TR Gross EM USD, Bloomberg Commodity Index Total Return, Bloomberg Barclays EU Govt All Bonds Total Return, LBMA Gold Price PM USD

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in Japanese Yen*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in Japanese Yen*
*Returns from 31 December 2001 to 31 December 2021. Computations in Japanese Yen Spot of total return indices for LBMA Gold Price PM, Bloomberg Barclays US Agg Total Return Value Unhedged USD, BPI Total Index, MSCI Japan Gross Total Return Local Index, MSCI Daily TR Gross EM USD, MSCI Kokusai Gross Total Return JPY Index, MSCI ACWI ex USA Gross Total Return USD Index, MSCI ACWI ex Japan Gross Total Return USD Index Bloomberg Commodity Index Total Return, ICE BofA Japan Corporate Index. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in Japanese Yen Spot of total return indices for LBMA Gold Price PM, Bloomberg Barclays US Agg Total Return Value Unhedged USD, BPI Total Index, MSCI Japan Gross Total Return Local Index, MSCI Daily TR Gross EM USD, MSCI Kokusai Gross Total Return JPY Index, MSCI ACWI ex USA Gross Total Return USD Index, MSCI ACWI ex Japan Gross Total Return USD Index Bloomberg Commodity Index Total Return, ICE BofA Japan Corporate Index.

On Goldhub.com see: Gold returns.

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in US dollars*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in US dollars*
*Returns from 31 December 2006 to 31 December 2021\, based on availability of data. Period chosen for consideration limited by availability of Asia government bond index. Computations in US dollars of total return indices for MSCI Emerging Markets Index, Bloomberg EM Aggregate Index, MSCI AC Asia Pacific Index, MSCI AC ASEAN Index, MSCI World Index, MSCI Singapore Index, S&P Pan Asia Government Bond Index and spot for LBMA Gold Price PM. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2006 to 31 December 2021\, based on availability of data. Period chosen for consideration limited by availability of Asia government bond index. Computations in US dollars of total return indices for MSCI Emerging Markets Index, Bloomberg EM Aggregate Index, MSCI AC Asia Pacific Index, MSCI AC ASEAN Index, MSCI World Index, MSCI Singapore Index, S&P Pan Asia Government Bond Index and spot for LBMA Gold Price PM. 

On Goldhub.com see: Gold returns.

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in RMB*
*Returns from 31 December 2006 to 31 December 2021, based on availability of data. Computations based on Bloomberg Commodity Index Total Return, China Foreign Exchange Trade System’s 1 day Repo fixing rate, MSCI Daily TR Gross EM, CSI Commodities Index, Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged, Bloomberg Barclays China Aggregate TR Index, MSCI Daily TR Gross World Index, MSCI EM Daily TR Growth Gross, Au9999 and Shanghai Stock Exchange Composite Index. All calculations in RMB since December 2006. Sources: Bloomberg, China Foreign Exchange Trade System, China Securities Co., Shanghai Gold Exchange, World Gold Council

Sources: Bloomberg, China Foreign Exchange Trade System, China Securities Co., Shanghai Gold Exchange, World Gold Council; Disclaimer

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in Rupees*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in Rupees*
*Returns from 31 December 2006 to 31 December 2021, based on availability of data. Computations in rupees of total return indices for LBMA Gold Price PM USD, S&P BSE Sensex Total Return Index, Bloomberg Barclays 1-3 Year Indian Treasury Total Return Index Hedged INR, S&P BSE India Government Bond Index Total Return, CRISIL AAA Long Term Bond Index, MSCI World Index, MSCI Emerging Net Total Return USD Index. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns from 31 December 2006 to 31 December 2021, based on availability of data. Computations in rupees of total return indices for LBMA Gold Price PM USD, S&P BSE Sensex Total Return Index, Bloomberg Barclays 1-3 Year Indian Treasury Total Return Index Hedged INR, S&P BSE India Government Bond Index Total Return, CRISIL AAA Long Term Bond Index, MSCI World Index, MSCI Emerging Net Total Return USD Index.

 

Chart 2: Gold has outperformed most broad-based portfolio components over the past two decades*

Gold has outperformed most broad-based portfolio components over the past two decades*

Average annual return of key global assets in Australian dollars*

Gold has outperformed most broad-based portfolio components over the past two decades*
Average annual return of key global assets in Australian dollars*
*Returns from 31 December 2001 to 31 December 2021. Computations in Australian dollars of the AusBond Bank Bill Index, Bloomberg AusBond Composite 0+ Yr Index, Bloomberg Global Aggregate Total Return Index AUD Hedged, S&P/ASX 300, MSCI World ex-AUS, Australia Public Unit Trusts Unlisted Equity Trusts, S&P/ASX 300 A-REIT Index, MSCU Australia Infrastructure Index, Eurekahedge Australia New Zealand Hedge Fund Index, Bloomberg Commodity Index and LBMA Gold Price PM. Sources: Bloomberg, MSCI Inc, World Gold Council

Sources: Bloomberg, MSCI Inc, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in Australian dollars of the AusBond Bank Bill Index, Bloomberg AusBond Composite 0+ Yr Index, Bloomberg Global Aggregate Total Return Index AUD Hedged, S&P/ASX 300, MSCI World ex-AUS, Australia Public Unit Trusts Unlisted Equity Trusts, S&P/ASX 300 A-REIT Index, MSCU Australia Infrastructure Index, Eurekahedge Australia New Zealand Hedge Fund Index, Bloomberg Commodity Index and LBMA Gold Price PM.  On Goldhub.com see: Gold returns.

Gold is also in demand via the jewellery market, valued by consumers across the world. And it is a key component in electronics.4 These diverse sources of demand give gold a particular resilience: the potential to deliver solid returns in various market conditions (Chart 7).

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer *Returns in US dollars from 31 December 2011 to 31 December 2021. On Goldhub.com see: Gold returns.

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns in US dollars from 31 December 2011 to 31 December 2021.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in pound sterling from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns in pound sterling from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in euro from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns in euro from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in yen from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*Returns in yen from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in US dollars from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, MSCI Inc, World Gold Council; Disclaimer

*Returns in US dollars from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.

On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in RMB from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns. Sources: Bloomberg, China Foreign Exchange Trade System, China Securities Co., Shanghai Gold Exchange, World Gold Council

Sources: Bloomberg, China Foreign Exchange Trade System, China Securities Co., Shanghai Gold Exchange, World Gold Council; Disclaimer

*Returns in RMB from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns in rupees from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices. On Goldhub.com see: Gold returns.

*Returns in rupees from 31 December 2011 to 31 December 2021. See Chart 2 for respective indices.
On Goldhub.com see: Gold returns.

 

Chart 3: Gold has performed well over the past decade, despite the strong performance of risk assets

Gold has performed well over the past decade, despite the strong performance of risk assets

Average annual return over the past five and 10 years*

Gold has performed well over the past decade, despite the strong performance of risk assets
Average annual return over the past five and 10 years*
*Returns from 31 December 2001 to 31 December 2021. Computations in Australian dollars of the AusBond Bank Bill Index, Bloomberg AusBond Composite 0+ Yr Index, Bloomberg Global Aggregate Total Return Index AUD Hedged, S&P/ASX 300, MSCI World ex-AUS, Australia Public Unit Trusts Unlisted Equity Trusts, S&P/ASX 300 A-REIT Index, MSCU Australia Infrastructure Index, Eurekahedge Australia New Zealand Hedge Fund Index, Bloomberg Commodity Index and LBMA Gold Price PM. Sources: Bloomberg, MSCI Inc, World Gold Council

Sources: Bloomberg, MSCI Inc, World Gold Council; Disclaimer

*Returns from 31 December 2001 to 31 December 2021. Computations in Australian dollars of the AusBond Bank Bill Index, Bloomberg AusBond Composite 0+ Yr Index, Bloomberg Global Aggregate Total Return Index AUD Hedged, S&P/ASX 300, MSCI World ex-AUS, Australia Public Unit Trusts Unlisted Equity Trusts, S&P/ASX 300 A-REIT Index, MSCU Australia Infrastructure Index, Eurekahedge Australia New Zealand Hedge Fund Index, Bloomberg Commodity Index and LBMA Gold Price PM. 

Beating inflation, combating deflation

Gold has long been considered a hedge against inflation and the data confirms this. The average annual return of 11% in US dollars over the past 50 years, has outpaced the US and world consumer price indices (CPI).5

Gold also protects investors against high and extreme inflation. In years when inflation was higher than 3%, gold’s price increased 14% per year on average (Chart 4). This number increased significantly with even higher inflation levels.6 Over the long term, therefore, gold has not just preserved capital but helped it grow. 

Research also shows that gold should do well in periods of deflation.7 Such periods are characterised by low interest rates, reduced consumption and investment, and financial stress, all of which tend to foster gold demand.

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in US dollars as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in US dollars as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: US CPI since January 1971. Sources: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in US dollars for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: US CPI since January 1971. 

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in pound sterling as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in pound sterling as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in pound sterling for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: UK CPI since December 1988, based on available data. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in pound sterling for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: UK CPI since December 1988, based on available data. 

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in euros as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in euros as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in pound sterling for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: European CPI since January 1971. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in euro for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: European CPI since January 1971. 

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in yen as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in yen as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in yen for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: US CPI since January 1980, based on available data. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in yen for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: US CPI since January 1980, based on available data. 

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in domestic currencies and consumer prices for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Low inflation corresponds to periods when annual inflation was lower than the country’s median inflation rate since January 1991. High inflation corresponds to periods when annual inflation was higher than the country’s median inflation rate since January 1991. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, International Monetary Fund, World Gold Council; Disclaimer

*Based on y-o-y changes of the LBMA Gold Price in domestic currencies and consumer prices between 2001 and 2020.

Low inflation corresponds to periods when annual inflation was lower than the country’s lower bound inflation target rate. High inflation corresponds to periods when annual inflation was higher than the country’s higher bound inflation target rate. The target inflation level is 4% in Vietnam, 2.5-4% in Malaysia, 2-4% in Philippines, 1-4% in Indonesia and 1-3% in Thailand. Singapore does not have an explicit inflation target rate but the MAS aims to control core inflation around 2%.

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in RMB as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in RMB as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in RMB for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Chinese CPI since January 2000. Source: Bloomberg, ICE Benchmark Administration, National Bureau of Labor Statistics, World Gold Council

Sources: Bloomberg, National Bureau of Statistics, Shanghai Gold Exchange, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in RMB for ‘gold’: Au9999, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Chinese CPI since 2002.

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in Indian rupees as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in Indian rupees as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in Indian rupees for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Indian CPI since December 1981. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in Indian rupees for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Indian CPI since December 1981. 

 

Chart 4: Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold historically rallies in periods of high inflation, outperforming broad-based commodities

Gold and commodity nominal returns in Australian dollars as a function of annual inflation*

Gold historically rallies in periods of high inflation, outperforming broad-based commodities
Gold and commodity nominal returns in Australian dollars as a function of annual inflation*
*As of 31 December 2021. Based on y-o-y changes in Australian dollars for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Australian CPI since January 1971. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Based on y-o-y changes in Australian dollars for ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index and ‘inflation’: Australian CPI since January 1971. 

Outperforming fiat currencies

Investor demand has been boosted by persistently low interest rates and concerns about the outlook for the dollar, which affect the perceived opportunity cost of holding gold.

Historically, major currencies were pegged to gold. That changed with the unravelling of the US gold standard in 1971 and the eventual collapse of the Bretton Woods system.8 Since then, with few exceptions, gold has significantly outperformed all major currencies and commodities as a means of exchange (Chart 5). This outperformance was particularly marked immediately after the end of the gold standard. A key factor behind this robust performance is that the supply growth of gold has changed little over time – increasing by approximately 1.6% per year over the past 20 years.9 

By contrast, fiat money can be printed in unlimited quantities to support monetary policy, as exemplified by the quantitative easing measures in the aftermath of the Global Financial Crisis (GFC).10 In recent years, the rapidly increasing global money supply and a low to negative rate environment have fostered an optimal environment for gold to outperform global sovereign debt, such as US treasuries and to track the global money supply (Chart 6).

 

Chart 5: The purchasing power of major currencies and commodities has significantly eroded compared to gold

The purchasing power of major currencies and commodities has significantly eroded compared to gold

Value of currencies and broad commodities relative to gold (January 2000 = 100) *

The purchasing power of major currencies and commodities has significantly eroded compared to gold
Value of currencies and broad commodities relative to gold (January 2000 = 100) *
*As of 31 December 2021. Relative value between ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index, and major currencies since 2000. Value of commodities and currencies measured in ounces of gold and indexed to 100 in January 2000. On Goldhub.com see: Gold prices. Source: Bloomberg, ICE Benchmark Administration, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2021. Relative value between ‘gold’: LBMA Gold Price PM, ‘commodities’: Bloomberg Commodity Index, and major currencies since 2000. Value of commodities and currencies measured in ounces of gold and indexed to 100 in January 2000. 

On Goldhub.com see: Gold prices.

 

Chart 6: Gold prices have tracked the expansion of global money supply and outpaced T-bills over time

Chart 6: Gold prices have tracked the expansion of global money supply and outpaced T-bills over time

Global M2 growth, US 3-month T-bill total return, gold price*

Chart 6: Gold prices have tracked the expansion of global money supply and outpaced T-bills over time
Global M2 growth, US 3m T-bill total return, gold price*
*As of 31 December 2021. Data starts in 1973 due to data availability. Global M2 is first calculated by aggregating the available set of individual country M2s (excluding Venezuela due to data quality) in US dollars as provided by Oxford Economics. The resulting aggregate is then re-based to 100 on January 1973. US 3-month T-bill total returns were constructed using cumulative returns based on 3-month US T-bill yields and rebased to 100 on January 1973. Gold based on the LBMA Gold Price PM USD. Source: Bloomberg, ICE Benchmark Administration, Oxford Economics, World Gold Council

Sources: Bloomberg, ICE Benchmark Administration, Oxford Economics, World Gold Council; Disclaimer

*As of 31 December 2021. Data starts in 1973 due to data availability. Global M2 is first calculated by aggregating the set of available set of individual country M2s (excluding Venezuela due to data quality) in US dollars as provided by Oxford Economics. The resulting aggregate is then re-based to 100 on January 1973. US 3m T-bill total returns constructed using cumulative returns based on 3-month US T-bill yields and also rebased to 100 on January 1973. Gold based on the LBMA Gold Price PM USD.

Footnotes

  1. January 1971 – December 2021.

  2. During the gold standard, the US dollar was backed by gold, and the foreign currency exchange rates were dictated by the Bretton Woods System. In August 1971, the Nixon Administration announced the halt of the free conversion between the US dollar and gold catalysing the collapse of the gold standard and, subsequently, the Bretton Woods system.

  3. For other return metrics and performance see Appendix II.

  4. See Chart 18a.

  5. Based on average annual CPI changes for the US (3.94%) and world (10.4%) as measured by the IMF from December 1971 – December 2021. 

  6. The 15 instances US CPI was higher than 4%, the average gold return was 21%, while in the 10 instances that US CPI was higher than 5%, gold increased 27% on average.

  7. Ibid footnote 2.

  8. From 31 December 2001 – 31 December 2021. See the Demand and Supply section at Goldhub.com.

Important disclaimers and disclosures [+]Important disclaimers and disclosures [-]