Jeffrey G. from Conyers, GA asks: Hello Mitch, I’ve noticed that gold has been on a tear recently. I’m curious if you have an explanation as to why, and I wonder if you think it makes sense to have a gold allocation in an investment portfolio for diversification, as a hedge, or maybe even for just pure return reasons. Thank you.
Mitch’s Response:
Thanks for writing, Jeffrey. Gold has been in rally mode recently, rising in-line with the S&P 500 last year and moving higher year-to-date in 2025. The 25% gain last year was gold’s best annual performance in over a decade. While this seems impressive, consider that the S&P 500 rose over 25% in 2019, 2021, and 2023. More on that later.1
First, let me address your question on the ‘why’ of strong gold performance. The reasons are likely multifaceted, rooted in a combination of economic, geopolitical, and market-driven factors. I think it’s fair to point to geopolitical and global economic uncertainty as demand drivers for gold, with two ongoing conflicts, swirling questions about global alliances, and lingering uncertainties about trade and tariff policy.
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We’ve also seen central banks around the world aggressively increasing their gold reserves, purchasing over 1,000 tonnes (metric units) annually for the third consecutive year. This large-scale institutional buying has played a key role in supporting higher prices.
That all being said, I’m less enthusiastic about gold as long-term investment. Historically, gold has underperformed equities over extended periods—there have been periods of strong appreciation, often followed by prolonged stagnation or sharp declines. There are no reliable fundamentals to support gold’s long-term appreciation, like earnings and free cash flow do for equities. It follows that gold does not generate income, unlike stocks, which provide dividends. This lack of income generation limits gold’s ability to contribute to long-term wealth accumulation, in my view, making it less attractive than equities or fixed income for investors who prioritize long-term growth and passive income.
At the end of the day, while gold’s recent rally has been impressive, its long-term track record suggests that it is not the best option for sustained wealth building. Its volatility, lower historical returns, and lack of income make it an unreliable long-term asset compared to stocks, in my view. I am not outright against gold as an allocation within a portfolio, but I would caution against seeing it as a long-term growth asset and certainly not as an income generator.
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Disclosure
1 Blackrock. February 13, 2025. https://www.blackrock.com/us/individual/insights/stay-long-gold
2 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility offer at any time and for any reason at its discretion.
3 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility offer at any time and for any reason at its discretion.
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