During times of risk and market volatility, investors look for high-quality assets that can save their capital and minimize losses. History has shown many times that gold works as a good store of value in such times of uncertainty. However, the 10-year return for gold investments plunged deep below investors’ expectations.
According to data presented by Block Arabia, after turning negative in August, gold’s 10-year return rose to just under 2% this week.
A Sharp fall After Fantastic Return Rates in 2019 and 2020
For the last 50 years, gold has been the perfect stock market hedge, with its most impressive performance in the 1970s and 2000s. From 2000 to 2009, during the worst decade for the S&P 500 after the 1930s, the S&P 500’s annual return was just over 1%. At the same time, the gold investment return amounted to 18% per year throughout the entire decade.
According to St. Louis Fed data, positive returns on gold investments continued in most years during the next decade. In 2002, gold’s annual investment return hit 25.6%. Five years later, this figure jumped to almost 32%. After fantastic 2009 and 2010, the following years witnessed a negative trend, with the annual investment return for the precious metal reaching the deepest point of -27% in 2013.
Four years later, in 2017, the annual investment return recovered to 12.7%. Finally, in 2020, gold became an asset with the second-highest yearly investment return behind silver, bringing an average return of almost 25% that year, much more US stocks and corporate bonds or EAFE stocks.
However, statistics show that 2021 witnessed a sharp fall, with gold’s YTD investment return plunging to -7.37%.
Although 3-year and 5-year investment returns for the precious metal remained high, amounting to 46% and 31% as of this week, respectively, the 10-year return dropped significantly over the last two months. On August 10, it amounted to -6.56% and then slipped to -7.54% in the first days of September. Statistics show this figure manager to recover a bit a hit 1.97% on October 4th.
Global Demand for Investment Gold Plunged by 60% YoY
Investors see gold as a ‘safe haven’ in times of market volatility, just like those triggered by the COVID-19. That is why global demand for investment gold surged to all-time highs last year.
In 2019, before the COVID-19 hit, the global demand for investment gold amounted to an average of 300 metric tons per quarter. By the end of March 2020, this figure jumped by 93% to 556 metric tons. The increasing trend continued in the second quarter of the year, with global demand for investment gold hitting over 584 metric tons, almost double the amount in the same quarter a year before that.
The World Gold Council data show the global demand for gold for investment purposes hit a record-breaking 1,140 metric tons in the first half of 2020, the highest figure so far.
However, the following months have witnessed a noticeable downsizing trend, with the figure falling to 138 metric tons in Q4 2020. Although global demand for investment gold recovered and hit 465.2 metric tons in the first half of 2021, that is still 60% less than in the same period a year ago.