Fisher Investments UK Reviews Why Gold Loses Lustre Long Term
When Fisher Investments UK reviews assets most likely to deliver on investors’ long-term financial objectives, we find gold inferior to equities. Gold may shine over short stretches, which can attract attention. But over the longer term, our research shows little benefit – the yellow metal provides few of the vaunted advantages many commentators we follow say.
The conventional rationale we have seen associated with owning gold: the metal is the ultimate hedge in times of trouble, maintaining its purchasing power in high-inflation environments (when prices are rising fast economywide) and periods of financial turmoil. But we think recent history debunks this logic. From when year-over-year UK consumer prices troughed in August 2020 (0.2% y/y) to their fastest recent climb in October 2022 (11.1%), gold fell 2.6% – it failed to keep up with inflation, in Fisher Investments UK’s eyes, which makes it a poor hedge. Fisher Investments UK’s review of the situation finds its alleged superpower subpar – when most needed, gold was a bit dull. Over the same timeframe, global equities rose 25.8%.
But even gold’s 7.0% 2022 return has a further message about both its use as an inflation hedge or haven from geopolitical turmoil. Gold boomed early that year through a March high, falling -9.3% after that through that year’s end. That decline came as inflation accelerated and war raged in Ukraine. Now, equities also fell at times that year. But few consider them a haven against inflation or war. Furthermore, taking a broader look, equities recovered their December 2021 peak in July 2023. Gold? It peaked in August 2020 and didn’t recover until March 2022. Based on their actual performance over time, gold wasn’t the superior asset.
In Fisher Investments UK’s reviews of market history encompassing longer stretches, equities’ higher overall return than gold’s isn’t incidental. Since the gold standard fell in 1973, its annualised return – the yearly rate required to reach its ending value from inception – has been 7.2% in US dollars, which we use for its longer history. This trails the MSCI World Index’s 8.8%.
Moreover, equities’ higher returns came with a relatively smoother ride. Gold’s standard deviation – the degree of fluctuation around its average annual return – is 25.3% versus equities’ 17.3%. This means over any 12-month timeframe, about 68% of gold returns’ observations were within plus or minus 25.3 percentage points of its annual average – 8.0 percentage points more than equities’. Not only have gold returns historically been lower, they were also more volatile. We don’t think an asset with these attributes serves investors well over the long term as it leaves them less likely to hit their targeted goals.
When Fisher Investments UK reviews assets’ drivers, we find equities’ aggregate earnings growth over time generates higher returns, whereas precious metals – like other commodities – lack this ability. Our research shows commodity cycles are subject to boom and bust, and gold even more so because it has few industrial uses. Therefore, demand swings on sentiment – buyers’ moods – and in our experience, these swings are impossible to time. Without commercial application tied to the business cycle, we have found sentiment rests on wildly varying perceptions of gold’s attractiveness as a store of value. As we showed earlier, this can be inconsistent – and not necessarily during periods when its alleged hedging powers would come in handy.
To us, rather than searching fruitlessly for underlying reasons behind sentiment shifts – which can occur for any or no reason – assessing corporate profits’ outlook is a much more reliable endeavour. Whilst the future isn’t certain and earnings sometimes suffer temporary setbacks, they have proven longer-term growth records – alongside corporations’ sales and pricing power – based on our observations. Investors who own equities share in these profits and benefit directly from them. So when Fisher Investments UK reviews gold’s investment prospects in comparison, we see its glimmer as mostly a mirage.
Sources
- FactSet, as of 11/7/2024. Statement based on MSCI World Index returns with net dividends and gold price per troy ounce in pounds, 31/12/1972 – 30/6/2024.
- FactSet, as of 11/7/2024. UK consumer price index, August 2020 – October 2022, gold price per troy ounce, 31/8/2020 – 31/10/2022.
- FactSet, as of 11/7/2024. MSCI World Index returns with net dividends, 31/8/2020 – 31/10/2022.
- FactSet, as of 15/7/2024. Gold return in pounds, 31/12/2021 – 8/3/2022.
- FactSet, as of 15/7/2024. Gold return in pounds, 8/3/2022 – 31/12/2022
- Ibid. MSCI World Index return, 4/1/2022 – 20/6/2022.
- FactSet, as of 11/7/2024. MSCI World Index returns with net dividends, 8/12/2021 – 3/7/2023.
- FactSet, as of 11/7/2024. Gold price per troy ounce, 6/8/2020 – 15/3/2023. Currency fluctuations between the dollar and the pound may result in higher or lower investment returns.
- FactSet, as of 11/7/2024. Gold price per troy ounce in US dollars, 31/12/1972 – 30/6/2024. Currency fluctuations between the dollar and the pound may result in higher or lower investment returns.
- FactSet, as of 11/7/2024. MSCI World Index returns with net dividends in US dollars, 31/12/1972 – 30/6/2024. Currency fluctuations between the dollar and the pound may result in higher or lower investment returns.
- FactSet, as of 11/7/2024. MSCI World Index returns with net dividends and gold price per troy ounce in US dollars, 31/12/1972 – 30/6/2024. Currency fluctuations between the dollar and the pound may result in higher or lower investment returns.
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Disclaimer
This document constitutes the general views of Fisher Investments UK and should not be regarded as personalised investment or tax advice or a reflection of client performance. No assurances are made that Fisher Investments UK will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. Nothing herein is intended to be a recommendation or forecast of market conditions. Rather, it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. In addition, no assurances are made regarding the accuracy of any assumptions made in any illustrations herein. Fisher Investments Europe Limited, trading as Fisher Investments UK, is authorised and regulated by the UK Financial Conduct Authority (FCA Number 191609) and is registered in England (Company Number 3850593). Fisher Investments Europe Limited has its registered office at: Level 18, One Canada Square, Canary Wharf, London, E14 5AX, United Kingdom. Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission.
Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission. Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.