Why is Gold Stereotyped as a Low-Performing Investment?
If you ask most people why they have little or no gold, they will often tell you that the stock market gets much higher returns. This is said with a great amount of conviction, as if it were an obvious fact. However, that fact is far less obvious than they might think. Gold has fared only a few percent worse than the market over the last 20 years yet it is viewed in the same realm of investment as bonds or securities. The first reason for this is decades of extraneous factors manipulating the price of gold at a time when personal investment advice was developing. The second factor falsely deflating gold returns in the minds of private investors is survivorship bias. Additionally, a progressive view of history also distorts people’s views towards gold by considering a specific set of technological and political outcomes as set.
The 1970s and 80s were a unique time of growing investment opportunities for the average person. Technological advances allowed for easier stock buying and selling, and the whole world of investment opportunities became mainstream. With this came investment manuals, talk shows, and discussions. General financial concepts reached the ears of the public at a much higher volume. This was great for investors and advisors, but it came at a very poor time for gold. The Bretton Woods Agreement had recently dissolved so countries had no need for gold in international transactions. While gold had previously served as a backbone of foreign trade, it was replaced by the dollar, and demand by its largest institutional holders dropped. This put a severe dent in the price increases of gold for many years. Gold slowly and steadily being released into the economy dampened any increase in gold demand. Unfortunately, this contributed to the idea that gold itself was a stable yet low performing asset.
Unique stories of skyrocketing stocks keep many investors hooked on the stock market and unable to appreciate the returns of gold. Gold does not have the potential for returns like Nvidia or Tesla. Every investor hopes that their selection of stocks will have some of these massive gainers, even if they know it’s not realistic. Gold doesn’t have this extremely rare upside, so it’s impossible for investors to view it with the same sort of gambling mentality. While massive returns are extremely appealing, they are also so rare that no one should make their portfolio strategy in the hope of achieving them. In reality, gold actually performs long term not too differently from the bottom half of stocks, but the unique successes of those few stocks that are extremely successful buoy stocks upward. Many of the same investors who see gold’s recent upward trend as unsustainable fully buy into the idea that the market’s growth is actually sustainable.
A progressive view of history damages the perceived value of gold in many ways. First, it creates a hierarchy of perception that prizes online or technical realities above physical ones. Recent trends have made many things that used to be physical into cloud-based technological realities, and a progressive view of history assumes that this will continue. A progressive view of history would also believe that our current Internet-based systems of payment will only be strengthened as time goes on, and the desire to own physical assets is backwards. Gold is often touted by those who stand against government overreach, but a view of history as a march toward progress would not see this as a valid long-term concern. They would believe that governments will march towards equality and safety at the same time and that anyone who stands against that is an individualist better suited to an era of the past.
Often overlooked as an investment, gold is ignored due to three main factors. The first factor that falsely reduces gold’s importance is the false perception that gold is a low-performing asset. This notion came about due to price manipulation in key points in history such as the dissolution of the Bretton Woods Agreement. Second, the consistency of gold’s growth falls victim to underestimation due to the survivorship bias, coming from rare success stories from exceptionally well-performing stocks. The large numbers from these profitable stocks dwarf gold’s steady and profitable returns. Lastly, through the scope of a progressive view of history that tends to favor digital and technological advancements, physical assets, namely gold, become unreasonably undervalued. These three factors have greatly damaged mainstream investor’s perceptions of gold in spite of its tried and true dependability.
