Gold's Rally Masks Uneven Long-Term Record
Gold's historic rally has dominated the market in recent years, crushing inflation and sending prices soaring. However, a six-decade review by Deutsche Bank reveals that gold's performance is not as reliable as many investors believe.
The review covers the period from 1957 to 2023, showing that while gold generated an annualized inflation-adjusted return of roughly 2.5%, U.S. consumer-price inflation averaged 3.7% over the same period. The figures highlight the importance of considering different time periods and economic conditions when evaluating gold's performance.
Deutsche Bank's review also breaks down gold's performance during various market cycles, including a particularly weak period from 1957 to 1970, during which gold posted an annualized real loss of roughly 2%. This weakness was largely due to the Bretton Woods system, under which the U.S. maintained a fixed official gold price until dollar convertibility ended in 1971.
However, gold's performance improved significantly from 1971 to 1985, with real returns near 8% against inflation of roughly 7%. But from 1986 through 2000, gold lost around 4% annually after inflation even as CPI remained near 3%. Another powerful cycle followed from 2000 through 2023, when real returns approached 6% against approximately 3% inflation.
More recently, the 2024-to-2026 period has seen a dramatic surge in gold prices, with annualized real returns near 30%. Deutsche Bank maintains a $4,600 year-end gold target, although gold has already displayed unusually volatile and explosive price behavior. Investors are advised to treat gold as a portfolio diversifier rather than a precise CPI hedge.