Key Takeaways
- Gold has outperformed equities and bonds since 2000, making it a potentially valuable asset in modern investment strategies.
- Central banks and institutions have been net buyers of gold purchasing record amounts over 2022 and 2023.
- Scarcity is likely to contribute to higher gold prices over time.
- Historically, gold has offered positive returns during periods of economic uncertainty, providing a hedge against market downturns.
- Gold is a 'defensive' asset, providing proven portfolio protection during drawdowns.
Why an allocation to gold may be worth considering right now
Many investors consider gold a safe haven and include it in their portfolio as a way to potentially offset losses from another asset class. Some investors are hesitant to include gold in their portfolios because of its volatility.
While gold is speculative and, in most cases, should not be bought as a single investment, here are some reasons it may be worth considering right now as part of a diversified portfolio.
Gold has outperformed equities and bonds since the dawn of radical monetary practices by world central banks.
1. The modern era of gold:
Source: Bloomberg. Period 12/31/1999-2/29/2024.
2. Central Banks have been net buyers of gold since 2009:
In 2022, central banks purchased a record amount of gold. In 2023, they maintained their breakneck pace, purchasing 1,037t of gold, almost matching the 2022 record.
Global Central Bank Gold Purchases, in Tonnes (2010-2023)
Source: World Gold Council, Incrementum AG. Data as of Dec. 31, 2023
3. Gold is finite:
Lack of discoveries and declining production will drive gold prices higher.
Major Gold Discoveries by Year (1990-2023)
Source: S&P Global Market Intelligence. Data as of Dec. 1, 2023.
Gold has outperformed the S&P 500 in 6 out of the past 7 periods of economic uncertainty.
4. Gold provides proven portfolio protection:
Gold has returned an average of +12.72% compared to -11.34% for the S&P 500 during these periods.
Performance % of S&P 500 Index vs Spot Gold During Periods of Uncertainty (2007-2023)
Source: Sprott Asset Management, Bloomberg. Data as of 12/31/2023. * The beginning and ending periods selected are our best estimate of the highest impact periods of each crisis and does not necessarily indicate the exact beginning or ending of the specific event. This information is presented for illustrative purposes only. Data as of 12/31/2023. Source: Sprott Asset Management, Bloomberg. Dates used: Global Financial Crisis: 10/11/2007-3/6/2009; Eurozone Crisis: 4/20/2010-7/1/2010; U.S. Sovereign Debt Downgrade: 7/25/2011-8/9/2011; China Yuan Devaluation: 8/18/2015-2/11/2016; Fed Rate Hike & China Trade War: 9/20/2018-12/24/2018; COVID-19 Pandemic: 12/31/2019-12/31/2020; Russia-Ukraine War: 2/24/2022-12/31/2023; Israel-Hamas War: 10/7/2023-12/31/2023. S&P 500 TR Index is measured by the SPXTR; U.S. Treasuries are measured by Bloomberg Barclays US Treasury Total Return Unhedged USD (LUATTRUU); and Gold Bullion is measured by spot gold (Bloomberg GOLDS Comdty).
5. It Can Help Offset Risk and Improve Returns
An allocation to gold may improve the risk/return profile of a portfolio.
Growth of $10,000
For illustrative purposes only. * Portfolios are rebalanced annually. Gold represented by Gold Commodity price, Canadian Bonds (FTSE TMX Canada Bond Index), U.S. Equities (S&P 500), Canadian Equities (S&P/TSX Composite Index). Source: Bloomberg, FPSC. Data as of Feb. 29, 2024.
Understanding the Risks
Buying gold can make sense for many investors, to provide balance and stability in their portfolios. Although, like most investments, it also carries inherent risks that should be considered when determining whether or not it is a good fit for your investment portfolio.
The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP (“Ninepoint”) and are subject to change without notice. Ninepoint makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances.
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