Gold’s Performance Puts it at Second-Best Asset Since 1999

According to data by JPMorgan, gold had an average annual return of 7.7%.

gold second best asset

In a recent analysis on Seeking Alpha, publisher and money manager Frank Holmes outlined why gold has been the second-best performing asset since 1999. Holmes has previously talked about gold’s outperformance over different time stretches, yet he finds the metal’s long-term reliability of particular importance as global physical demand intensifies.

For the 20-year period ending on December 31, 2018, gold posted an average annual return of 7.7% as per JPMorgan’s data. This places the metal second only to real estate investment trusts (REITs) in terms of performance. In that time, gold has beaten crude oil, real estate and all types of bonds. The latter are generally seen as the primary safe-haven alternative to gold.

Then there’s gold’s performance compared to the S&P 500 Index, which came in with a return of 5.6% during the same period. This questions the view that gold merely acts as a store of wealth whereas stocks provide flashy returns. The performance recap against equities is even more impressive as the stock market is reaching the end of a historic, decade-long bull run. Holmes also points out that the average investor, one who is presumably low in gold weighting, saw a return of a mere 1.9% during the stretch.

According to the Seeking Alpha article, one investor who’s reaping the benefits of investing in gold is Ray Dalio, the billionaire founder of Bridgewater Associates, the world’s largest and most successful hedge fund. Besides being a major personal holder of bullion, the article states Dalio also bases much of his firm’s strategy around the yellow metal. Bridgewater’s SEC filing for Q4 2018 revealed that Dalio has spaced out investors’ money across all corners of the gold market.

Another group of investors intimately familiar with gold’s utility are central banks. According to the article, although global central bankers have been net buyers of bullion since 2010, they have recently upped their purchases in a head-turning manner. China’s gold purchases amid attempts to broker a satisfactory trade deal with the U.S. have been making the headlines in recent weeks, as the Asian nation brought its official gold holdings to 1,885 tons in March. The figure came after four consecutive months of heavy physical buying that put China on track to beat Russia’s own purchases by the end of 2019. For reference, Russia bought a total of 274 tons of bullion last year.

Other central bankers have shown a similar inclination in recent months reports the article, with governments around the world purchasing a combined 51 tons of bullion in February, the largest monthly increase since October 2018. It will no doubt be interesting to see how this translates to gold’s price movement in the coming months. For longer-term oriented investors, however, news that central bank bullion demand has soared to a 50-year high is likely of greater importance.