It’s got to be wortha bomb – after all, $1 invested in US stocks in 1801 would be worth $55.8 million today. Surely your gold is worth something close ... Then you open the deposit statement.
So, what happened? Gold might feel like a safe bet for New Zealand investors – who typically love assets they can physically touch, like a house or land – but history tells a different story:
Gold barely beats inflation. From 1980 to 2006, gold’s price didn’t rise, and inflation slashed its buying power by 68%.
Gold is volatile. Since 1977, gold has had nearly twice as many losing years as stocks – and bigger crashes.
Gold underperforms stocks. Over the past 44 years, even Cornflakes rose more than gold.
The overcrowded lifeboat
Gold is much like a 112-person rescue craft on the Interislander.
It usually sits forgotten as passengers enjoy the scenic crossing.
However, when our infamous Cook Strait waves rock the ferry, one or two nervous travellers might eye it cautiously.
But here’s where things get strange. Once the lifeboat draws 50 or 60 people, hundreds of others notice and try diving for a seat.
In their frantic eyes, that 112-person boat provides safety in the storm.
Famed Scottish poet, Charles Mackay, would have laughed. In 1841 he wrote Extraordinary Popular Delusions and the Madness of Crowds. That title perfectly describes the current Kiwi rush into gold.
But before piling in with others on a golden lifeboat, let’s inspect this “investment” vessel for the holes it always has.
The long-term letdown
Here’s the thing: gold has already proven itself a lousy long-term investment.
Based on Jeremy Siegel’s book, Stocks for the Long Run and Morningstar data – if one dollar were invested in gold in 1801, it would have grown to that measly $122 by 2025.
By contrast, one dollar invested in US stocks over the same period would have grown to a whopping $55.8 million.
Gold is also more volatile than stocks. For example, the price of gold declined during 18 of the 48 calendar years between 1972 and 2020. Over that same period, stocks dropped just 11 times.
When gold fails you most
Sadly, history shows us that gold disappoints investors when they least expect it to.
People clamoured for gold in 1974.
On an emotional level, holding on to physical goods made some kind of sense. Stocks fell hard in 1973 and 1974. President Nixon faced impeachment. Cold War fears ran high. Inflation hit double digits.
Much like today, investors piled into gold as the way out of the storm.
Then, gold plunged almost 30% over the next two years. Meanwhile, US stocks gained just over 68% over the same time period.
And again – in 1980, the US hit a crippling recession. Once again, investors jumped into lifeboats that overflowed with people.
If someone had invested $100 in gold in 1980, three years later, it would have plunged to just $46. Meanwhile, US stocks gained 53% over the same time period.
It’s easy to forget, but this was one of history’s toe-curling moments – even here in New Zealand where our banking system proved more resilient than most.
Several Titanic-sized businesses started to sink. Lehman Brothers was the largest corporate bankruptcy in US history.
Companies “too big to fail” were on the ropes. They included multi-billion dollar business bankruptcies like Washington Mutual, General Motors, CIT Group, Chrysler, Thornburg Mortgage, General Growth Properties, Lyondell Chemical, Colonial BancGroup, Capmark Financial Group, Ambac Financial Group and several other monster-size businesses.
People feared government intervention and the results of quantitative easing. Even as stocks recovered, experts on television said stocks and the economy would plunge hard again.
The well-worn opinion said: “We’re in a secular bear market. Protect your money now.”
Gold continually proves its lousy long-term track record, writes Nick Stewart.
Many Kiwis rushed for the promise of gold’s shining boat. And its price did go up ... until it fell hard.
Let’s do the same exercise: If someone had $100 invested in gold at the end of 2012, it would have sunk to $59 just three years later.
Over this same period, while talking heads on TVNZ said, “This time would be different,” global stocks soared 50%.
Fast forward to 2025. Markets are volatile, “the gold bugs” have come out of hibernation and gold has risen once again.
But according to Duke University Business professor Campbell R. Harvey and his fellow researchers, Claude B. Erb and Tadas E. Viskanta, gold has still lost to inflation after its price peaked in January 1980 and August 2011.
Gold still records more calendar year declines than stocks. Gold continually proves its lousy long-term track record.
Yet, gold still tempts New Zealand investors ... exactly when it shouldn’t.
What this means for Kiwi investors
You might think you can jump into gold now and then jump out when something more promising shimmers on the horizon. But that isn’t likely.
Don’t take financial advice from your mate “the gold bug” down at the local who swears this time is different. Don’t fall for extraordinary popular delusions and the madness of crowds.
Instead, seek professional financial advice from an independent financial adviser focused on these proven principles:
Building a diversified portfolio of low-cost, plain vanilla, easy to understand, index funds across different asset classes and seek known return premiums.
Ignoring forecasts and investment news that trigger emotional decisions.
Staying the course through market turbulence.
Helping you remain patient with your investment strategy.
Rebalancing periodically to maintain your target asset allocation.
This disciplined approach is the recipe for long-term success for New Zealand investors. It’s far better, in fact, than jumping onto a golden boat that history shows will likely sink beneath your feet when you most need it to stay afloat.
Over the past 44 years, even Cornflakes rose more than gold. That’s certainly food for thought when planning your financial future in God’s Own Country.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 398.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz.
