Gold vs Stocks: Historical Returns

Gold has long been considered a safe investment; it’s an investment that has always been attractive as an alternative to stocks. This is in large part because gold moves differently from stocks, going up or down in value at different times and for different reasons.

In the end, it’s important to look at what exact results this effect has produced. Gold doesn’t involve interest or dividends; profits are determined by price appreciation alone. Whether you want to learn how to invest in gold in NZ or buy gold from NZ gold merchants, let’s look at historical returns to gain some insights into what you can expect with stock vs gold investments.

History of the gold and stock markets

Gold markets

Gold has a long history as both an investment and a regular medium of exchange. This history predates even the earliest stock markets.

Of all the precious metals, gold is the most popular as an investment, and the third most valuable per unit of weight (platinum and palladium are far rarer, and thus priced higher). 

Gold has been used as a medium of exchange and as an investment throughout human history. Most European economies and the US used the gold standard until the 20^th century. The last major currency to be divorced from gold was the Swiss Franc in 2000.

Despite this, gold is still a common instrument of diversification, often used for retirement savings or as a safe haven asset for any future economic hardship. Gold is normally purchased in bullion, meaning coins or bars sold by brokers. Other types of gold investment include gold in jewellery and stocks in gold mining companies.

Today, investors still purchase gold as an alternative asset. The purpose is often to diversify portfolios, with about 5% to 10% in precious metals, mainly gold. Gold is popular as a “safe haven” investment. That means when most assets are falling, gold will often appreciate in value or at least go through less severe price changes. Are you curious about the gold price today? Keep reading here. 

What about stock markets?

Stock markets also have a long history, but a much shorter one than gold. Speculation in the form of buying goods in anticipation that prices will rise goes back to 1400s Belgium. The first stock market was founded in Amsterdam in 1611 in a move to raise capital for the world’s first publicly traded company. At the time, the Dutch East India Company was the first listed company. 

Stock markets have since created a long and exciting history. The purpose of stock markets everywhere since 1611 has remained roughly the same. However, the width and breadth of industries open to investment and the specifics of stocks as a financial instrument have expanded greatly. 

Several major milestones in the stock markets have occurred that economic historians point to. One example of this is the creation of the Dow Jones Industrial Average (DJIA). The DJIA goes back to 1896 when it included 12 components covering industrial manufacturing companies.

Stocks are now so numerous that in order to track them, we must break them down into many categories. For the sake of honestly tracking historic performance, we will count the large-cap stocks traded in the US.

Comparison: Investment returns/performance 

In modern history, stock markets and gold play different roles. We have plenty of historic data to work with to track the returns of both gold and stocks.

General themes

Gold produces, on average, lower returns than stocks or bonds. However, during some short-term time spans, gold has been the more profitable investment.

In terms of trends, gold tends to appreciate in value when inflation rates are high. Gold also tends to appreciate when the geopolitical scene is chaotic or uncertain. In this way, gold often behaves in the opposite way to stocks. This is also why gold is often referred to as a “safe haven asset”.

It’s important to remember that gold is a single asset, with all bullion valued in its weight in gold. Items of greater historic or other subjective value, such as historic coins and jewellery, are secondary to the standard measure of gold’s value, which is 1 troy ounce (31.103 grams).

Stocks on the other hand are extremely numerous, so naturally, many individual stocks are available that can produce far higher returns. In their entirety, stocks outperform gold for most long periods. However, for some 10 (or even 15) year periods, gold actually produced better returns.

In short, the results always vary depending on which specific time period you are looking at.

Gold vs. stocks

Using data from the DJIA and historic gold prices, we can make a comparison.

From August 1992 to 2022, the price of gold rose by 381%. By contrast, during the same period, the DJIA rose by 807%.

Looking at just the last 10 years (August 2012 to 2022), gold has actually fallen by 6%, while the DJIA has gone up 121%.

As we mentioned, there have been some important exceptions. One of the best arguments for gold (as an investment strictly for generating a profit) is the period from 2005 through 2020. During that time, gold rose by an amount comparable to the increase in stocks (360%). However, in those 15 years, the DJIA rose only 153%.

Which investment is better?

While you probably don’t want to be left with an indecisive answer, it’s impossible to state which type of investment is “better”.

“Better” defines what is better for you. This depends entirely on what your goals are. If you’re looking to maximise returns over any given period of over 15 years, you’re probably more likely to get greater returns from stocks. But this answer doesn’t do justice to the unique value that gold provides.

The best answer we can give you is the advice provided by so many financial experts: your portfolio should include both stocks and gold, among other investments.

Gold is often held as an important part of a diversified portfolio. No real financial advisor would encourage you to put all your eggs in one basket. This would include stocks (as a whole) and gold.

The reason for gold’s importance is, as we’ve touched on, its historically predictable performance. Specifically, events that typically depreciate the value of paper investments tend to actually appreciate the value of gold. In the long term, stocks and bonds can produce higher returns in terms of both price appreciation and passive income (dividends and interest payments). 

They can also often prove far less volatile than gold. However, the forces that move the stock markets are very different from what moves gold.

You can buy gold online as easily as you can buy into any other investment. Accessibility is seldom an issue.

You should also consider a few other often overlooked reasons for investing in gold:

• Supply. Since the 90s, central banks around the world have sold much of their gold bullion. This slowed after the 2008 recession. However, gold mining has declined during the same period, creating supply constraints that benefit gold investors.
• Geopolitical concerns. As of 2022, it’s safe to say that we’re in one of those eras of global geopolitical uncertainty that comes up every few decades. However, people holding onto gold, the “crisis commodity”, have just a little less to worry about; because people who have already invested in gold have planned ahead, they won’t be scrambling to buy more gold during pandemics, wars, and other times of extreme hardship.
• Demand. While supply is lower, demand for gold is driven higher by emerging economies. This increased demand is both for safe haven investment reasons and for industrial applications.

Conclusion 

Gold is a different kind of investment than stocks. However, given the differences in how the gold and stock markets move, it’s clear why gold has historically been a good investment. A complete portfolio ultimately contains both gold and stocks. This diversity gives you high growth over the long term (stocks) and protection during times of global upheaval (gold). Pro tip: If you’re interested in buying gold, stick to the safest way to invest in gold.

More to read: How Gold Compare to Shares for the Past 5 Years?