Gold has long been considered a valuable asset, used for everything from jewelry to currency throughout history. In the modern investment landscape, it is often viewed as a hedge against inflation. Over the past two decades, gold has performed well compared to other investments, including the stock market.
Gold’s 20-Year Return
According to financial data through the end of 2024, “gold had posted a 20-year average annual return of 9.47%. If you had invested $10,000 at the start of this period, you’d have $65,967 in your account, a total gain of roughly 560%.”
Factors Driving the Price of Gold
Various economic and geopolitical factors influence gold prices. As noted by PIMCO, these include “inflation, interest rates, supply and demand, and geopolitical uncertainty.”
Additional factors such as “investor risk tolerance, purchases by central banks, government legislation, the value of the U.S. dollar, and even the metal’s own price momentum” also play a role.
The introduction of financial products like gold ETFs has further influenced the market by providing easier access to gold investments.
Despite these numerous variables, “the firm believes there is one factor having the most pronounced effect of all on the price of gold, and that is the yield on the 10-year U.S. Treasury note.” PIMCO’s analysis states, “all else equal, a 100-basis-point increase in 10-year real yields has historically led to a decline of 24% in the inflation-adjusted price of gold.”
The firm further concludes, “when real yields rise, gold prices should fall. Similarly, when real yields fall, we expect the price of gold to rise.”
MATEIN Travel Laptop Backpack, Business Anti Theft Slim Sturdy Laptops Backpack with USB Charging Port, Water Resistant College School Computer Bag Gift for
Why Do Yields on Other Investments Matter?
The relationship between gold and Treasury yields is tied to the metal’s lack of income generation. “Part of the reason for the 10-year Treasury’s outsized effect on the price of gold is that gold doesn’t pay any dividends.”
When real yields are high, “some investors gravitate away from gold because they aren’t generating any income by investing in it.” The opportunity cost increases as higher-yield investments, such as bonds, provide an income stream. However, “when real yields are low, investors aren’t giving up much to hold onto their gold, making the metal’s lack of income less of an issue.”
Gold remains a significant asset in the investment world, influenced by a combination of economic, political, and financial market factors. As history has shown, its value continues to be shaped by shifts in inflation, interest rates, and investor sentiment.