Gold Returns vs S&P
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Does not follow the stock market
Sources: IAU, SPX
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Hedge inflation + Market downturns
During the pandemic in 2020, gold showed to be incredibly resilient with the annual average return delivering 24.6%. This was the second highest return among a range of assets that year following silver, which had the highest returns. Gold has long been considered a durable store of value and a hedge against inflation. When evaluating the performance of gold as an investment over the long term, it really depends on the time period being analyzed. For example, over a 30-year period, stocks have outperformed gold (991% stocks vs 360% gold gains). But over a 15-year period, gold has outperformed stocks and bonds (330% gold vs 153% stock gains).
Did you Know
It is estimated that to date, humans have mined around 190,000 metric tons of gold, with only an estimated 54,000 tons remaining in the ground to mine. Growing scarcity plays into the price of gold.
The biggest owner of gold, as of 2018, was the U.S. government. At that point, the US of A owned 8,133.5 metric tons of gold (286 million ounces) stashed away. With the price of gold hovering around $1,800 as of January 2021 an ounce, the country's holdings are worth over $514 billion.
In the aftermath of the financial crisis, German retail investors stepped up their gold-buying habits. More German retail investors own gold (22%) than bonds (13% corporate and 5% government).
Low volatility equals the potential for stable returns
Gold has historically been an excellent inflation hedge
Global demand for the asset is buoyed by institutional investors like hedge funds and central banks
Reasons to Invest
If you buy physical gold, you'll need to pay for storage and insurance costs.
Gold may be a good store of value, but it's not typically much of a growth asset. Historical returns on gold aren't extremely impressive.
You'll probably have to pay a higher long term capital gains tax rate on gold as it's considered a collectible—and that includes gold ETFs.
How You’re Taxed
Gold investments are classified as ‘collectibles’. Gains on gold held for one year or less are taxed as ordinary income—the same tax treatment as short-term capital gains (STCGs). Gains on gold held more than one year are taxed as long-term capital gains, except the maximum tax rate is 28%. Like physical gold, gold ETFs, traded on the stock market are taxed as collectibles (vs being taxed like stocks, which are subject to the long-term capital gains rate—typically 15% or 20%)