Investors have long been captivated by the allure of gold, a precious metal that has served as a store of value for thousands of years. But is gold a good investment? And just how has investing in gold performed over the centuries?
Gold as an Investment: The Research
According to research by Campbell Harvey, a finance professor at Duke University, the answer is both fascinating and complex.
Gold is Resilient
Harvey’s research, which spans thousands of years, reveals that gold has had a remarkable track record as a store of value. As he notes, “Gold has survived every major civilization, every world war, every currency crisis and every financial meltdown.” This resilience is due in large part to gold’s unique properties: It is scarce, durable, and universally valued.
Gold Investment Performance
However, while gold has served as a reliable store of value over the centuries, its performance as an investment has been more mixed. According to Harvey’s research, gold has delivered an average real return of just 1.1% per year over the past 800 years. This is far lower than the returns delivered by stocks and bonds over the same period.
Of course, there have been periods of time when gold has outperformed other asset classes. For example, during the 1970s, gold delivered an average annual return of over 30%, as inflation soared and gold investors sought refuge in the precious metal. And in the wake of the global financial crisis of 2008, gold once again proved its worth as a safe haven, delivering strong returns as investors fled to safety.
Investing in Gold: Not a Star Performer
But over the long run, Harvey’s research suggests that a gold investment is unlikely to be a star performer. As he notes, “Gold has no earnings, no dividends, and no cash flows. It is a speculative asset that generates no income.” This means that the price of gold is largely determined by supply and demand factors, which can be highly unpredictable.
Furthermore, while gold as an investment may have performed well in the past, there is no guarantee that it will continue to do so in the future. As Harvey points out, “The world is always changing, and there is no reason to assume that what worked in the past will work in the future.” This means that investors who rely too heavily on gold may be setting themselves up for disappointment.
So what should investors make of Harvey’s research? For those who view gold primarily as a store of value, the metal’s long-term track record is a reassuring one. But for those who are looking for strong investment returns, investing in gold is unlikely to deliver the goods.
As with any investment, the key is to diversify and maintain a balanced portfolio that reflects your financial goals and risk tolerance. In the end, this is the approach that is most likely to deliver long-term success.
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