Gold’s appeal begins with its beauty and rarity, leading ancient civilizations, including the Greeks, Romans, Egyptians and Chinese, to favour it as a sign of wealth, power and spirituality, eventually spreading the precious metal’s reputation for bestowing prestige all across the world.
Gold’s association with luxury has allowed it to appreciate in value over the centuries, building a long-term investment track record supporting its ability to hedge against inflation and geopolitical tension and deliver returns uncorrelated to stocks and bonds. Over the past 20 years, this translates into a 9x return, well ahead of the S&P 500’s 6x effort, while over the past 53 years, holders have collected an over 55x return on their investment, trailing only stocks and corporate bonds, more than justifying gold’s place in a diversified portfolio.
This standout performance urges us to take a deeper look into why everyone from retail investors, to governments, to top financial institutions invests in gold, and whether or not they’re likely to continue doing so in the future.
Gold preserves pricing power
Investors allocate into gold because it has proven capable of outperforming during periods of high inflation, which tend to negatively affect stocks, bonds and cash. Here’s why:
- Stocks will often succumb to downward price pressure because of higher operational costs, with many investors choosing to wait on the sidelines for more favorable economic conditions instead of holding on to their shares.
- Bonds also tend to fall in price as interest rates rise to get inflation under control.
- Cash, for its part, suffers under inflation on account of higher prices decreasing the quantity of goods it can be exchanged for.
This dynamic has made gold the choice investment in modern times to help a portfolio thrive while prices rise. Recent history offers numerous illustrative examples, including:
- The 1970s and early 1980s, when U.S. inflation reached as high as 13.3 per cent, and gold grew by 10x from US$70 to over US$700 per ounce.
- The late 1980s into the early 1990s, when U.S. inflation peaked at 6.1 per cent and gold rose from about US$300 to US$500 per ounce.
- Additionally, an ounce will run you almost double what it did at the beginning of the COVID pandemic in March 2020, last hitting US$2,992 at the time of writing on March 14, 2025, marking the tail end of one of the worst inflationary periods in decades, with the Consumer Price Index surpassing 9 per cent in 2022.
When businesses are struggling because of high prices, tight monetary conditions and investors’ reluctance to take risk, gold has long established its role as a counteracting force, calling on its history as a source of value to shine at times when liquidity is at a premium.
Gold is synonymous with safety
While gold is effective at easing investor weariness about rising prices, there’s also more than a century of data supporting it as a safe-haven when global affairs take a turn for the worse – including both World Wars, the Gulf War and 9/11 – clouding expectations about near-term productivity and causing stocks to waver in the absence of a clear path forward.
More recently, in the aftermath of Russia’s invasion of Ukraine in Feb. 2022, the S&P 500 dropped by about 300 points, compared to gold’s US$200 gain from US$1,800 to over US$2,000 per ounce. Similarly, at the beginning of the Israel-Hamas War in Oct. 2023, the S&P 500 gave back almost 200 points, while gold soared from US$1,800 to over US$2,100.
The precious metal hasn’t looked back since, adding over 40 per cent to date, as of March 14, supported by recessionary fears, lingering post-COVID inflation and the uncertainty surrounding the 2nd term of U.S. President Donald Trump, who’s tariff-based trade wars with Canada, China, Mexico and the European Union are threatening to re-ignite inflation, cause mass unemployment and disrupt global supply chains.
If an event with wide-ranging macroeconomic reach is slowing growth, giving investors a reason to panic and ramping up volatility in traditional investments like stocks and bonds, gold has earned high-conviction for rising to the occasion.
Why investors’ demand for gold will endure
With a US$3,000 ounce within sight, the question of the hour then becomes, will the precious metal continue to benefit portfolios as it has in the past during abnormal growth environments?
In terms of inflation, the answer is a resounding yes, because as the global economy continues to grow, creating value through products and services, consumer prices will continue to rise, at times beyond fair value, periodically dampening investors’ appetite for stocks and increasing the appeal of gold’s multi-generational track record as a hedge. As rates then rise and inflation normalizes, investors will find their way back to a long-term outlook, paving the way for another cycle of heating and cooling growth – a built-in feature of capitalism – and another opportunity for gold to shine.
In terms of the unavoidability of risk and black swan events turning the economic cycle on its head, gold’s role as ballast also seems cemented into investors’ consciousness, backed by high returns during some of the bleakest periods in human history.
As an asset proven to diversify beyond stocks and bonds, an investment in gold – adjusted for risk tolerance and the required return of your financial goals – merits serious consideration for any and every long-term portfolio.
This is sponsored content issued on behalf of Border Gold Corp., a leading Canadian gold and silver dealer, please see full disclaimer here.
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(Top image, generated by AI: Adobe Stock)
