Gold is considered by many to be a strategic investment. Others say that it is a “barbaric relic” that has no place in an investment portfolio. In fact, until 1971 and the end of Bretton Woods, gold has been money for at least the last 5,000 years. Read about Bretton Woods and the petrodollar.

Now while gold as money has a very long history and a future, that does not necessarily translate into the metal being a sound investment. This is elegantly demonstrated in the chart below. Gold was a good investment from 1265 until 1500, but an appalling investment for the next four hundred years, until 1965. Thereafter, price volatility has been positively schizophrenic.

Gold_price_since1265Chart courtesy Goldman Sachs & Bank of England

The chart below shows the CPI adjusted gold price for only the last two hundred years. There have only been brief periods when it has been a successful investment.

Gold_price_since1800

Chart courtesy GoldSilverWorlds

In sum, while gold is useful as a hedge against adverse times, and as money, its credentials as an investment are poor.

 

 

02 August 2016 Commodities