Gold has been on a tear. As of late 2025, spot gold prices have topped $4,000 an ounce, climbing roughly 87% since early 2024—a rally that has investors asking the timeless question: Should I own gold? It’s a familiar cycle. When an asset performs spectacularly, interest spikes. But as headlines tout “the unstoppable rally,” it’s worth stepping back to look at gold’s history—its volatility, its role as a so-called inflation hedge, and what the data say about its long-term returns.
Gold as an Inflation Hedge — The Myth and the Math
Gold’s reputation as a hedge against inflation goes back decades, but history shows it’s a volatile and imperfect protector. Since 1970, U.S. consumer prices (CPI) have risen an average of about 3.9% per year, while gold’s price has increased roughly 8.2% annually over the same period. That looks impressive—until you consider how wildly gold moves. The standard deviation of annual inflation (CPI changes) has been roughly 3%, while gold’s volatility has been about 24%—even higher than stocks at ~20%. In plain terms, gold swings far more dramatically than inflation does. That makes it a poor “hedge” in the textbook sense—because a hedge should move roughly in line with what it’s protecting against. Gold’s price can overshoot or undershoot inflation by wide margins. So while gold has outpaced inflation over time, its short-term reliability as a shield is questionable.
Investors seeking to simply beat inflation—rather than perfectly offset it—have historically done better with stocks, which have also delivered positive real (inflation-adjusted) returns through most high-inflation periods. Stocks provide growth via earnings and dividends, whereas gold’s returns are purely price-driven. Over decades, equities have compounded wealth faster than gold, even though gold kept up with or exceeded inflation.
Comparing Long-Term Growth
To visualize the difference, consider what happened to $1 invested in 1970:
- Inflation (CPI): $1 then equals about $8.60 today (3.9% annualized)
- Gold: That $1 would be worth about $94 (around 8.2% annualized).
- S&P 500: The same $1 in the S&P 500 grew to roughly $322 (approximately 11.5% annualized, including dividends). 1
Gold and stocks beat cash over this time period—but stocks have compounded wealth about three times faster than gold. In other words, gold’s long-run growth, while solid, has lagged far behind the returns from a diversified stock portfolio. Gold’s edge over inflation is real, but the opportunity cost of holding a large gold allocation (instead of stocks) has been significant over the decades.
Gold as an Investment Vehicle: Volatility and Drawdowns
If you think of gold as a “steady” portfolio anchor, history might surprise you. Gold has delivered negative annual returns in roughly 40% of years, nearly twice as often as the S&P 500. While stocks have bad years too, gold’s downturns have sometimes lasted even longer. Historical analyses show 15- and even 20-year stretches of negative nominal returns for gold—making it unreliable for investors who need consistent growth. For example, after peaking in 1980, gold languished for almost two decades before a new bull market began in the 2000s.
The “Safe Haven” Appeal
Gold does tend to shine when fear grips markets. During the 2008 financial crisis, the S&P 500 fell 37%, while gold rose 5.8%. In 2022, stocks lost about 19%, and gold was nearly flat at –0.3%. This “flight to safety” behavior is real, but it’s also inconsistent. Historically, gold’s correlation with the S&P 500 has hovered between ~0.1 and 0.3 — low, but not negative. That means gold can move independently at times, but not always in the opposite direction investors expect. It often helps during major selloffs (gold was one of the few assets that held value in 2008 and provided a cushion again in 2022), yet there are other downturns where gold hasn’t offset stock losses much. In early 2020, for instance, gold initially dropped along with equities before rising again as the panic unfolded.
The bottom line: gold can act as a safe haven, but it’s not a guaranteed or straightforward one. Its low correlation to stocks on average can be a diversifier, but in any given crisis its performance can vary.
What Gold Is — and Isn’t
Gold differs from many other assets in one key way: it produces nothing. There are no dividends, interest payments, or earnings growth attached to a bar of gold. Its price depends purely on what the next buyer is willing to pay. That makes it fundamentally speculative—unlike a company, which creates goods/services and can grow its profits over time. You can analyze a stock based on earnings and cash flows; gold, by contrast, has no cash flow, so its value is inherently based on sentiment, supply/demand, and its status as a store of value.
Still, gold’s enduring appeal is hard to dismiss. Humans have valued it for thousands of years—for jewelry, for status, and for security. There’s a deeply emotional and cultural connection at play. For many investors, owning a little gold “feels” safe, even if the math says otherwise. The knowledge that gold is a tangible asset, not an IOU from a bank or government, can provide psychological comfort. This helps explain why gold demand often spikes during wars, financial crises, or inflationary scares: people turn to it not just for potential profit, but for peace of mind. In short, gold is as much belief-driven as it is data-driven.
How Much Gold Makes Sense?
There’s no universal answer, and every investor’s situation is different. However, for most investors, gold shouldn’t be a large share of their portfolio. A small allocation can satisfy the desire for diversification or serve as a behavioral “comfort cushion” without jeopardizing long-term returns. That kind of modest exposure to gold may help smooth out portfolio volatility a bit (potentially during infrequent crises) but won’t materially drag down your overall growth if gold underperforms for long stretches.
The Enduring Allure
Gold has its moments, but history reminds us that productive assets—like stocks and businesses—have been the true engines of wealth creation. Gold can still play a role, offering diversification or even emotional comfort, but it shouldn’t be mistaken for the foundation of a long-term financial plan. In the end, gold’s story is as much about human nature as it is about markets. We’ve spent centuries digging it up, moving it across oceans, and locking it away again—proof that our fascination will always endure, even if history has shown that the real power to build wealth may lie elsewhere.
The material is for informational purposes only and should not be considered investment advice. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. The market data shown herein is not to be relied upon as performance that can be achieved. The opinions contained herein are subject to change without notice. Indices cannot be invested in directly and are unmanaged.
