Investors seeking a haven from the economic fallout sparked by rising inflation and Russia’s invasion of Ukraine have turned to gold. And while gold has generated strong short-term returns, and the ETFs devoted to it have seen large inflows recently, its long-term diversification benefits shouldn’t be ignored.
Soaring prices: Amid high inflation and Russia’s recent invasion of Ukraine, investors have sent gold to about $2,000 an ounce, up about $170 since the end of 2021. Last year, as inflation flared, gold prices jumped to nearly $1,830 by year-end, up from about $1,757 at the end of September.
Spot price of gold
Positive returns: Year to date, the S&P GSCI Gold index has generated an 8.6% total return through March 10. In the same time frame, equity and bond indexes have produced negative returns. During the 1980s and 1990s, the S&P GSCI Gold index’s annualized return was -3.2% and 2.5%, respectively. However, in this century’s first decade, the gold index had a 13.6% annualized return, followed by 2.7% in the 2010s.
S&P GSCI Gold vs. equity and bond indexes
Diversifier: The S&P GSCI Gold index has low correlations to U.S. and global equity and bond indexes. The gold index’s 10-year correlation to the Russell 3000 index was 0.04.
10-year correlation to S&P GSCI Gold
Strong flows: In the first 10 days of March, gold ETFs took in over $3 billion, more than all of February. So far this year, inflows have totaled $7.4 billion, compared with $11.3 billion in outflows in 2021. SPDR Gold Shares, the sector’s largest ETF, had inflows of $2.4 billion in March.