Sound good to you? UK stocks annualised 11pc. In sterling, global stocks annualised 10.5pc. US stocks more than doubled USD gold returns – 11.9pc. Even 10-year US Treasuries annualised 6.7pc total returns (yield plus capital growth) while gilts returned 8.4pc.
Yet surely gold’s “stability” justifies its bland returns? No. Consider the one-year standard deviation, a measure of yearly return volatility around their averages. Through November, gold has a sharply higher standard deviation (19.1pc in pounds) since 1974 than world stocks (14.9pc). Some safe haven.
Low returns with high volatility reveal a stark truth: for good returns with gold, timing is crucial.
Gold’s gains can boom big, but they are sporadic – with long stagnations and deep declines between. The recently celebrated intraday pop above $2,100 in dollars shows this.
Hovering under its August 2020 peak of $2,067, gold is only now, 40 months later, almost flat. US stocks are up 44pc since then in dollars. In pounds, while gold is a wee 2.5pc above 2020’s high, the FTSE All-Share is up 37pc. Stocks’ dominance over gold on both sides of the pond has come despite 2022’s global equity market swoon.
Gold’s stagnant stretches aren’t new. After a late-1970s boom, gold peaked at $850 on Jan 21 1980. It didn’t regain that mark until Jan 2 2008 – fully 28 years later. That boom pushed gold’s record high to $1,895 on Sept 6 2011.
Analysts expected more upside, especially with eurozone sovereign debt and banking fear exploding, while UK stocks suffered a deep correction. Wrong. Gold dropped 45pc through 2015’s low and didn’t see that $1,895 high again until October 2020. Nobody can time that volatility.
Also, gold’s returns in pounds are positive in 62pc of rolling 12-month periods since 1974. In dollars, it is in positive territory in even fewer periods – 58pc.
UK and US stocks, meanwhile, each rose in 80pc of those periods in their respective currencies. Hence, even if you can’t time stocks well, holding long term works well. With little industrial utility outside jewellery, gold’s fluctuations stem mostly from sentiment swings, which defy timing.
If gold beckons to you, ask yourself why. For many, it is the recent glittery returns. Chasing heat is always a bad reason to buy anything. Some say it is about inflation or bear market hedging, but 2022 disproved that. Gold initially climbed after Russia invaded Ukraine, near record levels in pounds and dollars early that March. But then it dropped with stocks to a just slightly later bottom. Since its low, gold has climbed alongside world stocks. A good hedge shouldn’t parallel stocks’ swings.
