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Rolling Returns: Gold Vs. Stocks And Bonds

Oct. 21, 2019 10:01 AM ETSPDR® Gold Shares ETF (GLD)SPY, TLT70 Comments
Ploutos profile picture


  • Building on recent work on the topic, this article examines rolling returns of Gold, Stocks, and Bonds from the early 1970s to the current period.
  • Over shorter horizons, Gold can outperform stocks 30%-40% of the time, but as that horizon expands to decades, Gold almost always underperforms both stocks and bonds.
  • Gold is likely best deployed tactically in risk-off environments for stocks. Given its low realized returns and high volatility, it is an expensive macro hedge to carry structurally.

In a recent article entitled Gold vs. Stocks, I illustrated the long-term returns of the precious metal versus the S&P 500 (SPY) and a long duration Treasury Index (TLT). The article sparked a great deal of reader interest with 134 comments at the time I am writing this follow-up. In that article, I showed the long-term total returns and volatility of the three asset classes from 1973 to 2018. Gold has produced the weakest total returns with the highest variability as depicted below.

Long run return profile of gold, stocks, and bonds

Gold has recently had a bit of a pop - climbing 7%+ in each of June and August - amidst global macro uncertainty and a climbing stock of negative yielding bonds around the globe. In that previous article, I was trying to illustrate that while gold has had a moderately negative correlation with stocks over time, it has historically been an expensive hedge given its low realized returns and high volatility.

Historical correlations: gold, stocks, bonds

Using monthly returns for gold, the S&P 500, and long Treasury bonds back to 1973, I calculated rolling returns for various holdings lengths. In my head, the long-term returns to Gold look much like the picture below where I have calculated rolling 30-year returns. The first calculated period is February 1973 through January 2003, inclusive.

Over that extended time period, which covers much of the investible horizon for many of us on Seeking Alpha, Gold has never had a three decade period where holders of the metal have done better than holders of stocks or long Treasury bonds. Some might question why the dataset starts at 1973. That is the longest dataset available for the bond index. Furthermore, I am using a series of an ounce of spot gold measured in dollars. Before the early 1970s, gold and the dollar moved together since they were linked by the gold standard, which the U.S. exited under the

This article was written by

Ploutos profile picture
Institutional investment manager authoring on a variety of topics that pique my interest, and could further discourse in this online community. I hold an MBA from the University of Chicago, and have earned the CFA designation. My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Analyst’s Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (70)

Learner16 profile picture
A good historical review, thanks.
Market Map profile picture
History shows that equity assets have been the best investments. Such a low outperformance profile ( 3 and 5 year rolling ) of gold versus equities, with just a couple of stretches over the last 50 years, shows how futile investment in gold has been, in nominal and inflation adjusted terms.

A better risk to reward situation, at least in terms of more robust 3 / 5 year rolling performance analysis, may be investment in International / emerging equities when they show outperformance over 3 year rolling periods. https://imgur.com/a/2PP6ebX

As many sources, over the past few years, have cited the vast discrepancy in PE valuations between U.S. markets and International / emerging markets, investment in the latter has been disappointing. Yet, there may be a point in the next few years when international will mark its first rolling 3 year outperformance versus SP 500 since 2009.
lshiang profile picture
It is interesting to read that the annual return of SP 500, long-term bond and gold are 10.7%, 8.24% and 5.68% respectively for the period between 1973 and 2018. However, looking ahead for 2-5 years, the interest rate has only one-way to go, lower and lower to become close to Zero or even negative value. The long term bond at that point will become toxic while the equity market will certainly have a major correction sometime, nobody knows. Gold will have a period of shining time when the market is turbulent. I certainly agree that carrying gold is expensive in the long run.
Lake OZ boater profile picture
@lshiang wrote:

1. "The long term bond at that point will become toxic ..."

Comment: That is a matter of perspective. Over the past 148 years, the "real" (after inflation) long treasury bond yield has averaged + 2.1%.

The "real" yield is so volatile that it is almost impossible to measure in real time, but we don't have to worry about it because it is mean-reverting.

In a de-flationary world, 2% "real" may be the best we can do.

2. "carrying gold is expensive in the long run." Also a matter of perspective. As Taleb points out, an investor should judge the quality of a decision by considering if history played out in a different way.
Despite your several articles regarding the poor returns of gold investments, I always go back to the historical returns of several static portfolios. Using risk and draw-downs as major selection factors, it seems always detrimental to the portfolio to eliminate gold. No other asset seems to replace its effect. I am not able to put this in context especially regarding the performance data you published. Could you, or someone, please clarify?

Lake OZ boater profile picture
@Brickbear FYI...

At the links below you can find three "risk-balanced" portfolios that have "static" allocations to gold, along with their long-term stats including drawdowns and recovery times.

Golden Butterfly: portfoliocharts.com/...

Permanent Portfolio: portfoliocharts.com/...

All Seasons Portfolio: portfoliocharts.com/...
@LakeOZ boater
Yeah. Those are the ones I am talking about. Reducing the gold percentages has an adverse effect on the historical performance, at least taking into acount drawdowns and recoveries. I just find it interesting that gold by itself is such a lousy performer.

Thanks for the response.
24 Oct. 2019
It's really quite simple. 1000$ invested in the gld etf in late 2004 would give you a 55% better return than a 1000$ investment in the spy etf. At no point during that 15 year period would your investment in the spy etf been above the investment in the gld etf. You can do an easy comparison of spy and gld starting at gld's inception point in 2004 if you have a Schwab account. People who use rolling averages or average yearly returns are just "windowing" charts to prove the point that they think is correct.
Having said this I would not have rode gold down from it's high of around 1900$ but, if you had, you still would be 55% positive today over an equal spy investment.
As long as US dollar is still the dominant world currency, you have the point. Good luck!
If you’re rebalancing, the more volatility the better so gold is most attractive. The last 38 years have seen rates fall from roughly 15 to 2. That has been a strong tailwind for financial assets and a headwind for gold. Looking ahead, the opposite may be in store.
E.D. Hart profile picture
How any people own the same stock for 30 years. Average holding period of a stock is what---12 months?

So in this age of quants and constantly rebalancing, it does makes sense to hold some gold in your portfolio.
Ploutos profile picture
Interesting perspective - I think the lifespan of an SPX constituent is down to teen years, so can see that point. I think some investors will own equity indices for decades.
Lake OZ boater profile picture
@E.D. Hart

For consideration:

1. Here's the conclusion from a whitepaper by the KC Fed titled "How Long Is a Long-Term Investment?"

"This article confirms the conventional wisdom that in the United
States stocks historically have been safer than long-term government
bonds for investors with long holding periods.

>>>But the article also shows that the conventional wisdom has only been true for investors who held their portfolios for more than 25 years. <<<<

For practical purposes, that may be too long a holding period for most investors. Over the years, for investors who have held their portfolios for shorter periods, both stocks and bonds were exposed to substantial risks, and stocks did not necessarily outperform government bonds. This implies that in making asset allocation decisions, investors should think carefully about how long they will be able to hold their portfolios undisturbed and how much risk they are willing to bear."


2. A basic financial planning principle: "If a buy-and-hold investor with no particular view about market conditions or future returns wishes to have a fairly predictable amount of wealth at some future date, that investor should hold a portfolio with a duration that is roughly equal to the investment horizon."

Per the folks with Vanguard: It is reasonable that any long-term stock/bond portfolio--5 years horizon or more--- should factor in the sensitivity of the equity allocation to rate changes by incorporating a "duration" estimate.

My "duration" estimation right now for the S & P 500 is around 38 years.

I have no idea what your retirement horizon might be, but putting it all together, here's the approximate duration of the classic

60% stocks / 30% bonds / 10% cash portfolio

at this time ...

(0.6 x 38 years) + (0.3 x 6 years) + (0.1 x 0 years) = 25 years.

Take-away: Stocks have very long-durations, probably longer than a long-duration treasury bond!!

For more detailed insights on using equity duration in financial planning, if you plug this whitepaper title (below) into a Google search, you can download a PDF by the folks at S & P Dow Jones Indices:

"Applying Equity Duration to Pension Fund Asset Allocation: A Review of S&P 500® Duration."
E.D. Hart profile picture
Roger that...@LakeOzBoater...
Having a moderate allocation to gold/silver along with a minor allocation to crypto as well as a stash of good old American greenbacks is a prudent move I think. I would never advise anybody to go overboard on them though. As long as we all continue to believe and participate in the fractional reserve banking that values everything in pieces of cotton paper that can be printed to infinity, I think stocks will continue to do well.
CincinnatiRick profile picture
You can call it an investment if you want but it is really more useful to think of (physical) gold as insurance against the world going to hell. You pay for insurance...it's a cost of doing business.

In this case, you are insuring the business of running a portfolio of investments providing a cash return in the form of dividends and whatever capital gains are harvested. Of course, just as with investments, one would want to exercise patience to time the purchase of any commodity, including precious metals, at a relatively low price compared to the historical norm. Easier said than done. My observation of those who get gold fever is a distinct lack of patience. Been there, done that. Hopefully wiser now.
Lake OZ boater profile picture
"Insurance" is a decent way of looking at an allocation to gold.

Nassim Nicholas Taleb, author of "Fooled by Randomness", provided this insight into the correct way to think about outcomes:

“One cannot judge a performance in any given field by the results, but by the costs of the alternative (i.e. if history played out in a different way). Such substitute courses of events are called alternative histories. Clearly the quality of a decision cannot be solely judged based on its outcome, but such a point seems to be voiced only by people who fail (those who succeed attribute their success to the quality of their decision).”

Having portfolio exposure to gold in a stock- heavy portfolio (i.e. investments that "pay dividends") is like buying a life insurance policy when our families are young.

We shouldn't complain when we don't collect on the insurance, and bitch that the premium was "wasted". It protected our family from a catastrophic event. In the case of 'unused' life insurance, you need to consider the alternative universe.

What might have happened to your spouse and children if they were left behind as a result of your death? They likely wouldn't be able to pay off the home mortgage, and probably have little or no money for the kids' college educations--without insurance.

The market melt down in 2008 showed up in the bottom 5% of the Monte Carlo Simulation (MCS) runs at the time. It was not "unexpected", but too many investors rationalized the probability was so low they didn't need "insurance" for the possibility of it happening.

Gold Price Performance : Annual Change
Year -----------------vs. Euro---------------vs. US dollar

Source: Goldrepublic.com

There is now around $16 T of negative-yielding debt across the world, and IMHO, that calls for a little "insurance."

"Gold is the mirror image of the world's unquestioned and misplaced confidence in the institute of central banking." James Grant
True that you can think of gold as insurance. But in a way you can think of any asset as a type of insurance. They are all just insuring against different things...
Ploutos profile picture
Like the insurance concept - this article then discusses the cost of that insurance over time.
21 Oct. 2019
You have clearly ignored my thesis that since gold etf's have been available in late 2004, that gold has at no point been a worse investment than the spy etf. You went with a 20 year window instead of a 10 year window and used a rolling average to prove your point. 10$ invested in GLD in 2004 has out performed the spy 55% as of today. Now that ride would have been very volatile and one should not have rode the peak in 2011 all the way down to 2015, but if you were a buy and never look at your portfolio type the bet would have paid off handsomely. With the advent of an easy way to invest in gold via an ETF, everyone should have 5 to 20% of their portfolio in a gold ETF simply to protect yourself against fiat currencies and calamities now that direct ownership of gold is no longer required.In fact, the ease of owning gold via the ETF, I maintain, is the reason for its performance since 2004.Having to buy and hold bullion restricted the universe of potential buyers.
GLD promises "yep, we're for sure backed by 700+ tons of gold!" before turning around denying retail investors any rights to the claimed 'gold'. Zero ways to even verify the promised 'gold'. What a laugh.

There are many contradictory elements between paper gold GLD and actual gold such as counterparty risks, subcustodial audit loophole, GLD's ZJ6752 bar and more. I can elaborate on the many issues with this sketchy gold fund GLD if you want.
The "average" returns from stocks are the perfect scenario where an investor buys a low cost ETF and holds it for decades. This is not what has been happening, though. There are studies showing that the average individual investor makes something like 2% in stocks, probably due to "buy high sell low" type of behaviour. This is the real world, making money with stocks is NOT that easy.

These investors were probably better suited just buying gold coins to hold forever. Seems far easier to just buy coins and forget about them. Gold coins don't go BK, they don't cut dividends, there is no competition and so on. A very simple investment that retains the value in the face of inflation. Nothing to choose, nothing to fret over.

Everyone should probably have 10-20% of their net worth in physical gold.
tymurch profile picture
how does your 1 week of research compare to Ray Dalio's Bridgewater's extensive research on risk parity?
edaskew profile picture
Ok, so here is the deal: I wouldn't feel comfortable having 100% equities in my portfolio, so I feel like I need something else in there. In the past, like in 1973 for example, it would have been prudent to have something with a low correlation to the S&P500 like U.S. treasuries. In 1973, the yield on the 10 yr bond was between 6.5 and 7%. Not bad. I would have no problem taking that today! Bonds have done pretty well since 1973, since the yield on the 10 yr bond has dropped all the way down to just under 1.8%. So, since 1973, the yield dropped 5.2%. Can it drop another 5.2%, so that in 2065 it will be -3.4%? Would anyone lend the government money at negative 3.4%? I don't see that happening, do you?

So, having this in mind the future performance of U.S. treasury bonds is very, very likely to be much worse than it has been in the past. Also, we should keep in mind how the price of gold is affected by interest rates. Gold is an alternative hard asset that central banks and others can and do hold, an alternative to low or negative yielding sovereign bonds. If the yield on sovereign bonds is close to or less than the rate of inflation, as it is, then gold is favored. The day is coming when it will cost you to hold even cash. Swiss companies are going to start to pay banks to hold cash in their accounts very shortly.

Given this fact, the future performance of gold is likely to be considerably better than it has in the past. So taking these two suppositions together, who would think that the past relative performance of gold to bonds has any relevance to the future relative performance of these two assets? I would not.

Regardless of that, due to the negative correlation to stocks, a portfolio with 10-20% allocation to gold that has been annually re-balanced has done very well in the past. Check this out on portfoliovisualizer.com. Substitute 10 to 20% gold for the same amount of US bonds, keeping 50-60% in stocks and see how that performed on the back test. Understand that in the future this performance should be considerably better, given the extremely low interest rate environment we are in today.
Lake OZ boater profile picture
I decided to take my gold allocation from stocks, not bonds.

Here's a few points for consideration on the benefits offered by long-maturity treasuries in a portfolio.

1. Over the past 148 years, the "real" (after inflation) long treasury bond yield has averaged 2.1%. The "real" yield is so volatile that it is almost impossible to measure in real time, but we don't have to worry about it because it is mean-reverting.

In a de-flationary world, 2% "real" may be the best we can do. Think about the implication for common stocks. When all the inflation is squeezed out of an economy, companies have a very difficult time raising prices, and profit margins tend to shrink--sometimes to zero.

2. Long-maturity treasuries offer an very good risk-parity ingredient for stock- heavy portfolios. From the 2008 GFC experience...

iShares 20+ Year Treasury Bond ETF (TLT): +31.1%

SPDR S&P 500 ETF (SPY): (36.8%).
Bonds don't make sense at these yields. Real yields are o or less. if you think inflation is understated by 1.5% as I do, it's even worse. Credit spreads are not wide enough to change the equation.
I don't think stocks are worth the risk either with Warren and MMT on the horizon. I think John Hussman has calculated that price levels would have to triple to justify current valuations.
There isn't a law that says investors must own any stocks and bonds.
Lake OZ boater profile picture
"Bonds" is a generic term. There are short-duration,intermediate duration, and long-duration bonds.

The Fed can manipulate rates on the shorter-end of the curve (short and intermediate) , but not the long- end (20-30 year). I'm referencing the 30-year bond, not the 10 year.

Studies show that over long periods, starting in the US in 1830, the inflation rate averages about 4% and the real return on 30- year treasuries was 2%.

The real rate on long-duration treasuries is all over the place in the short-term. It's so volatile it's not predictable, but we don't have to worry about it because it's mean-reverting.

And "cash" is not trash. It offers a lot of option-ality in the event of a stock market crash or outright de-flation. Buffett is sitting on a mountain of cash right now.
Lake OZ boater profile picture
One of the best ways to estimate the failure rate of a long-term retirement portfolio is through the use of a Monte Carlo simulator (MCS) — a computer simulation that runs thousands of random scenarios. It lets the investor see the estimated odds of meeting their investment goal.

Try running a few MCSs with no allocation to gold first, and then some allocations to gold. These runs can help an investor chose the most appropriate asset allocation for their situation, and whether or not they need gold.

Not sure what percentage to try in a MCS ? For a stake in the ground....According to the World Gold Council, using the total value of all the gold that has ever been mined, it's about 4% of the combined value of the global stock, bond and gold markets. This would be a decent default allocation.

You can find a free MCS tool here:


At the links below you can find three "risk-balanced" portfolios that have allocations to gold, along with their long-term stats.

Golden Butterfly: portfoliocharts.com/...

Permanent Portfolio: portfoliocharts.com/...

All Seasons Portfolio: portfoliocharts.com/...

As far as "timing" the gold market, the odds are not in our favor. From the Hulbert Financial Digest, here's the percentage of monitored gold-timers who beat a "buy-and-hold" strategy:

Trailing 10 years: 0%

Trailing 20 years: 0%

Trailing 30 years: 0%

There is no "perfect" portfolio, only the one that is right for your situation and personal goals.
Thanks for the Monte Carlo Simulation Link.
Lake OZ boater profile picture
My pleasure, and hope you find it useful.

"Sequence of returns" risk, one of the biggest threats to pre-retirees and retirees, can often be addressed through portfolio diversification with non-correlated assets like gold.

As the great investment philosopher Peter L. Bernstein once wrote:

"You are never adequately diversified unless you have some holdings that make you uncomfortable."
LT Capital Gains profile picture
Gold isn't perfectly non-correlated or correlated - maybe thats why there are so few successful traders regarding gold.
Totally agree with the author’s conclusion; Gold doesn’t pay dividends of any consequence which doesn’t help as a long term hedge.
Lake OZ boater profile picture
"Gold doesn’t pay dividends."

For your consideration , versus the "conventional wisdom" ...

Although stock investors have a preference for cash dividends, from the point of view of classical financial theory, this preference is an anomaly.

Dividend policy should be irrelevant to stock returns, as Merton Miller and Franco Modigliani (Nobel prize winner) established in their 1961 paper “Dividend Policy, Growth, and the Valuation of Shares.”


In the 58 years since the paper's publication (aka “dividend irrelevance theorem”), it has never been challenged in the finance literature.

The low rate environment has created an over-emphasis on dividend-focused approaches.

-Vanguard’s High-Dividend ETF (VYM) has under-performed the S&P 500 in six of the last seven years (exception--2016).

-Over the last 10 years, VYM returned 12.2% per year, under-performing VFIAX (Vanguard 500 Index Fund) which returned 13.1%.

IMHO: The "total return" approach (i.e. a mix of dividend and non-dividend payers) is the optimal approach to stock investing.
RandyFloyd profile picture
"For me, this analysis suggests that Gold is best used as a tactical instrument in risk-off environments for stocks." this here's the key, because when you need gold, you really need it. those who hold it for long periods or forever are aware that you won't get returns... it's portfolio protection for the unknown.
I completely agree with your conclusions, Ploutos! Gold would be a much better hedge it it were not so volatile, but as is, there are much better ways to hedge a portfolio of stocks.
vinsoncg76 profile picture
Such as????
Such as real estate ... a real asset that has utility and produces consistent rental income, so long as you don't over leverage it. Residential, timberland, farmland, etc. Privately owned, not REITs. Article mentions bonds as well.
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