Analyzing Two Decades of Gold Investments: Experts Shed Light on Consistent Outstanding Returns

Over the last 20 years, gold has achieved an average annual return of 11.2%, outperforming numerous top assets when considering consistency and returns. Gold’s performance rates can be traced to various factors, including buyer purchase patterns in countries like India, central bank monetary policies, inflation rates, geopolitical concerns, and more. Over the last couple of decades, gold has provided a sharp increase in returns when compared to previous decades. Let’s analyze the top reasons why the asset is performing so well right now.

Gold typically performs best during periods of economic turmoil when inflation runs high and investors flock to the safe-haven asset to protect their wealth.

In 2011, gold achieved one of its most outstanding years amid the U.S. debt ceiling crisis. Gold gained 30.7% during 2011 as the U.S. economy crumbled following ongoing debt ceiling debates and a credit rating reduction.

The year before that, gold achieved similarly stellar levels, with an annual gain of 24.8% as the nation struggled to recover from the Great Recession. The Great Recession officially ended in June 2009, though much of its ramifications continued through 2010, with the economy not fully recovering until around 2016.

In 2020, gold achieved another excellent return rate of 28% as the entire globe battled the COVID-19 pandemic. The pandemic’s shutdowns caused severe financial ramifications that impacted economies around the world. Investors turned to gold to protect their savings amid the uncertainty of it all.

When calculating all of these high-return years with standard ones, gold’s average return over the last 20 years comes to 11.2%. During periods of economic turmoil and geopolitical uncertainty, though, investors enjoyed returns above the 20% range.

Numerous driving factors are contributing to gold’s consistent success.

To start, gold provides high returns, on average, when compared to inflation rates. Based on data from Smallcase, inflation increased by 5.4% from April 2021 to May 2022, while gold achieved a 13.6% return during that same period.

Gold doesn’t just increase during short periods, though. In fact, gold typically provides the best returns when carried long-term. From 1990 to 2020, gold prices increased by around 360%, with the primary spike happening in the last 15 years. Any investors carrying gold in their portfolio during this 15- to 30-year span likely enjoyed phenomenal returns, assuming they sold at a wise time.

Aside from its investment use, gold is an integral part of numerous industries around the world, which stabilizes its demand rates each year, regardless of external economic or geopolitical forces. NASA uses gold on satellites to reflect sun rays, cell phone manufacturers use the precious metal in SIM cards because of its premier qualities for conducting electricity, and electric vehicles may soon rely on gold for circuit boards. Technology accounts for around 80% of gold’s industrial applications.

Industrial demand for gold only makes up a small sector of gold’s total demand rates, though. Approximately half of the demand for precious metals comes from the jewelry sector, largely driven by major buyers like India and China that purchase gold for cultural purposes.

Retail buyers in India and China purchase gold as a symbol of prosperity and wealth. Both countries top the ranks for the highest levels of gold consumption each year as buyers flock to gold around festive holidays.

The final demand sector supporting gold’s outstanding returns is central bank gold buying. After the 2008 financial crisis, central banks around the globe shifted their asset reserve strategies to place more weight on gold. After experiencing the economic collapse, central banks began stockpiling their gold reserves to cushion funds for future crises.

Every central bank has its own reasons for buying gold, but for the most part, nations want to own gold in case currencies like the U.S. dollar collapse and a new universal currency like gold must emerge. If this were to occur, countries would want to be prepared with enough reserves to trade and stabilize their own economies.

Some nations, like China and developing countries, purchase gold to actively devalue the U.S. dollar while strengthening other currencies, like the yuan. Regardless of the strategy behind the action, central bank gold buying promotes gold demand, which ultimately boosts the asset’s performance rates. Last year, central banks broke the record for the highest net gold purchase total, reaching 1,136 tons.

According to the World Gold Council, gold demand generally breaks down into four major sectors: investor, jewelry, technology, and central bank demand. These factors support the precious metal, allowing it to achieve the stellar 11.2% average yearly return rate for the last 20 years.

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