Is Gold a Better Investment than Equities?

By Amit Rupani

Indians love their golden jewelry. According to a study conducted by World Gold Council, it was found that Indian households have accumulated up to 25,000 tons of gold, thereby retaining the tag of the world's largest holders of the metal. Estimates of gold with temples in the country could be 3,000-4000 tonnes.

Given the run-up in Gold prices that we have seen since 2000, it has been assumed by many small retail investors that gold prices can only go higher with time. That may not be a rational assumption. We can look back in history and compare how Gold has done compared to equities as an asset class.

I was able to pull-up historical prices of both S&P500 and Gold for last 90 years. Inadvertently, both were trading around same price range of around $20 in beginning of 1930 when the global great depression was picking up momentum. But their moves changed drastically as time progressed.

During the last 90 year period, S&P500 provided return of about 8.5 percent (~6% capital gain and ~2.5% dividend yield), whereas, gold provided return of about 4.93 percent during the same time. It may seem like a small difference of just 3.6 percent, but the power of compounding can do wonders with just few percentage point difference over a very long period of time. An initial investment of $10,000 in both S&P500 and Gold on January 1, 1930 would have generated today a final value of about $15,441,036 and $760,275 respectively. Now that's a big difference of little less than $15 million dollars!

Equity markets are nothing but a function of country's nominal GDP. Equities more or less align themselves with GDP growth rate over a long period of time. As the nation prospers by producing more goods and generating more and better services than last year, so does the equities market by generating huge wealth for its investors by moving in line with the GDP.

US's nominal GDP was about $105 billion in early 1930 which has grown to $21.43 trillion in 2019. This gives us a growth rate of about 6.09 percent. This growth rate in nominal GDP matches with capital return generated by S&P500 per above table, which is close to 6 percent. Just goes on to show how efficient the markets are over a long period of time. But markets can be as much inefficient in short-term.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine." – Benjamin Graham

Below table gives you a high level view of how U.S. has progressed and prospered over last 90 years:

If the current trend continues, the population of the United States will rise to about 438 million in 2050 from current levels of 328 million. As this happens, people will be consuming more and needing more services than today. This almost guarantees that the US GDP will be much higher (although growing at a slower pace) in 2050 from today's level. And in turn it guarantees that S&P500 should also be at much higher level from current levels in 2050. Will it be a smooth ride? No, for sure. There will be lots of bumps on the way. There will be new winners and losers of the changing economy like new Apples and new Amazons of the world. But collectively S&P500 as a basket should match the growth of GDP in the long run.

If you have 10 ounces of gold in the locker today and open it in 2050, it would still be 10 ounces in weight. It would not have grown at all in size. But S&P500 would grow in line with the GDP and would have generated a lot of dividends on its way to 2050. Warren Buffett has been very vocal about his disdain for gold as an investment. He sees little to no value in it. What Buffett refers to as a lack of value results from a lack of usefulness. He once stated about gold, “It doesn't do anything but sit there and look at you."

For centuries, gold has been regarded as having a negative correlation with equities and a positive correlation with inflation. In other words, gold is a safe-haven investment during times of economic recession and a worthwhile store of value during expansionary periods. But it is not an investment asset class that one can count on to generate a lot of wealth over a long period of time.

As a disclosure, I personally have zero investments in gold and will most likely never invest in gold as an asset class.

Happy Investing!


Amit Rupani, CFA is an Independent Investor, practices Value Investing principles, manages money for long-term wealth creation through Equities asset class. Email: