Why Gold Makes Sense for the Long Term, Analyst Says

Physical gold is heavy to handle—a standard gold bar weighs almost 28 pounds—but it sure can take wing. Gold has been dazzling investors for a long while this century, up almost nine-fold since 2000, while the S&P 500 rose 3.6 times. This year, gold is up 17.7%, to $2,452 per ounce, almost even with the rallying stock index (which has risen 18.1%). Still, perversely, gold can be volatile, tumbling very quickly, as good economic news can be bad news for the metal’s price.

Gold does best when inflation is rising, the economy is falling, or some other turbulence appears. From 2013 through 2019, it dipped by one-third amid low inflation and strong economic growth. Right after the Federal Reserve started hiking interest rates in March 2022, gold slipped again (higher rates are appealing to bond investors, who therefore ditch gold, which pays zero interest).

But bullion surged anew starting in October 2023 amid talk of a possible recession and rate cuts, along with strong demand for gold by Chinese and emerging-market central banks, as a hedge against the strong dollar.

To George Milling-Stanley, chief gold strategist at State Street Global Advisors, all the fluctuations are worth it because of gold’s long-term record: “The longer the time horizon, the better,” he says in an interview.

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Institutional investors hold gold in many forms: the bars themselves, shares of gold mining companies, exchange-traded funds and other pools. Endowments, such as those of the University of Notre Dame and the University of West Virginia, are notable gold owners. So are pension funds like the Ohio Public Employees Retirement System and the Teacher Retirement System of Texas.

As of June 30, OPERS gold holdings were $858 million, up from $745 million six months before. That is a just a small part of the fund’s $114 billion in assets.

Similarly, Texas Teachers has $13.6 million in gold investments out of $186 billion in total assets. Indeed, the gold figure had dropped from a higher figure, when Texas Teachers sold $33 million in stock of NovaGold Resources, a Canadian gold mining company, in this year’s first quarter.

Gold is just a minor part of most allocators’ portfolios. “It’s good for diversification; it’s a protective asset,” says Milling-Stanley of State Street, which recommends that clients maintain between 2% and 5% of their holdings in gold, a higher percentage than either OPERS or Texas Teachers owns.

Regardless of the allocation size, the point is that gold, whether in bars, miner stocks or other investments, has a staying power. After all, it is the oldest asset around, dating back to biblical times. As the 119th Psalm noted, only the Ten Commandments trump gold in the eyes of God: “I love your commandments above gold.”