Gold has been a sought-after prize since the beginning of recorded history. From the days of the ancient Mesopotamians to the 21st century, gold has been used for everything from jewelry to currency. And while gold is still prized for numerous industrial and cosmetic purposes, it’s also valued in the investment world.
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Often considered as an investment that stands up against inflation, in recent years, the yellow metal has truly sparkled, even when compared with the return of the stock market. In fact, you might be surprised at just how much you’d have in your account if you invested $10,000 in gold 20 years ago. Here’s a look at gold’s performance in recent decades and what might affect its return going forward.
Through the end of 2024, gold had posted a 20-year average annual return of 9.47%. If you had invested $10,000 at the start of this period, you’d have $65,967 in your account, a total gain of roughly 560%.
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Inflation, interest rates, supply and demand, and geopolitical uncertainty have long been cited as variables having an effect on the price of gold, according to noted financial services firm PIMCO. Investor risk tolerance, purchases by central banks, government legislation, the value of the U.S. dollar, and even the metal’s own price momentum can also play a role, along with the proliferation of products like ETFs that provide additional access to gold.
However, the firm believes there is one factor having the most pronounced effect of all on the price of gold, and that is the yield on the 10-year U.S. Treasury note.
According to an analysis conducted by PIMCO, “all else equal, a 100-basis-point increase in 10-year real yields has historically led to a decline of 24% in the inflation-adjusted price of gold.” Although PIMCO acknowledges that many of these other factors do play a role, the firm’s conclusion is that “when real yields rise, gold prices should fall. Similarly, when real yields fall, we expect the price of gold to rise.”
Part of the reason for the 10-year Treasury’s outsized effect on the price of gold is that gold doesn’t pay any dividends. When real yields are high, some investors gravitate away from gold because they aren’t generating any income by investing in it. The opportunity cost is just too high to hold onto gold when they could be earning a significant revenue stream by investing in bonds or other generative investments. On the other hand, when real yields are low, investors aren’t giving up much to hold onto their gold, making the metal’s lack of income less of an issue.
