Facts About Gold

Let’s look at some interesting facts about gold, with a natural focus on its financial and investment implications.

Gold’s Unique Position as an Asset

• Gold is the prototypical “non-productive store of value” (NPSOV). It doesn’t generate cash flows, yet it retains value through scarcity and because it’s widely agreed that it has intrinsic value. (Contrast with the imputed value of cryptocurrency.)
• Unlike equities or bonds, gold’s long-term upside isn’t tied to earnings, interest, or coupons, but rather to global money/wealth growth, which historically has run close to GDP growth.
  • Over a long enough time horizon, gold’s price is in line with global M0 money supply. (We look at M0 instead of M1, M2, etc., because those include credit items that are a promise to pay rather than money itself.)

Historical Share of Global Wealth

• For the past 200 years, gold has consistently held a small but persistent slice of global wealth, generally in the 1.8%-7.3% range of developed market liquid wealth (since 1975).
• This stability suggests gold is unlikely to be phased out as a store of value or dominate wealth holdings, but will continue to mirror long-term wealth/money growth.

Expected Returns vs. Risk

• With gold supply growing ~1.6% per year, gold’s expected real (inflation-adjusted) return sits near 0%-2%, depending on assumptions.
• Risk-adjusted, this return looks weak compared to productive assets.
• But gold’s real value comes from its correlation dynamics and diversification. 
  • It’s like a different type of cash, with slightly better returns and more price volatility.

Correlations and Diversification

• Gold’s average correlation to equities is near zero (0.01 since 1975), often flipping negative in crises (2008, 2011, 2020, 2022).
• Correlation with bonds is low (~0.10), and correlation with inflation is modest (~0.13 since 2004).
• It’s not necessarily a great short-run inflation hedge. It’s more sensitive to real rates than inflation.
• These weak relationships make gold a good diversifier, especially when stocks and bonds rise and fall together.

Gold in Crisis & Tail Risk Events

• In equity crashes (25%+ drawdowns), gold has averaged -2% vs. -33% for stocks, acting as a relative safe haven.
• Gold’s crash risk is uncorrelated to equities and bonds, making it a “crash differently” asset, valuable for tail-risk hedging.
• Inflationary shocks (tariffs, supply bottlenecks, excess demand) tend to hurt both stocks and bonds, while giving gold a tailwind.

Strategic Portfolio Utility

• An optimizer framework shows that even with near-zero expected returns, gold earns a place in portfolios because:
  • It’s lowly correlated to core assets.
  • It performs relatively well in tail risks.
  • It’s more useful when stock-bond correlation turns positive (as seen in recent years), which is most common when inflation is a bigger driver of macro shifts in asset prices than growth.

Demand & Central Banks

• Central banks remain major net buyers of gold. For example, in Q1 2025, official purchases were ~ 244 tonnes into reserves. (Source: World Gold Council)
• In 2024, central bank demand for gold exceeded 20% of global gold demand, versus about 10% in the 2010s. (Source: European Central Bank)
• Some emerging-market central banks, e.g., National Bank of Poland, China, Kazakhstan, etc., are increasing their holdings.
  • Gold holdings tend to be a bigger deal in emerging markets than in developed markets as a way to hold reserves without being dependent on reserve currency assets (e.g., financial risks associated with the fiscal deficits in these countries, geopolitical risk of holding the assets of countries they have geopolitical conflict with).

Inflation Hedging & Price Behavior

• Empirical work suggests gold is a proven long-term hedge against inflation, though its short-term performance is less consistent. 
• When US monthly inflation exceeds ~0.55%, gold tends to respond more strongly. (Source: https://doi.org/10.1016/j.resourpol.2022.103009)
• However, in many countries, gold doesn’t always correlate with inflation in the long run; some studies find no long-run equilibrium between gold and CPI in places like China, India, France. (Source: https://pmc.ncbi.nlm.nih.gov/articles/PMC7115710/)

Supply / Market Structure

• Recycled gold (i.e., scrap) is an important part of supply. Demand from central banks and investors may push up demand beyond what mined and recycled supply can immediately satisfy.
• Central banks’ demand appears relatively rate-insensitive. For example, even in periods when yields are high, central banks have still bought large quantities of gold.
  • This gets into the motivations of the various market participants, which vary. (Example: Agent-Based Modeling)

Correlations & Risk / Diversification Properties

• Gold tends to perform well as a safe haven: during geopolitical or economic uncertainty, investors turn to gold, boosting its demand.
• Demand for physical gold (bars and coins) reflects investor preference for tangible, non-counterparty-dependent holdings. 
  • Part of gold’s appeal is that it exists outside the financial/banking system.

Strategic & Geopolitical Dimensions

• Some central banks are using gold accumulation as part of reserve diversification, in some cases as a hedge against geopolitical risk, financial system instability, or as part of de-dollarization-type strategies.
• The share of gold in official reserves is still modest for many countries, so there is room for more accumulation without hitting obvious ceilings.
  

Related: Currency Trading Strategies & Diversification

Gold Through History: Wealth & Transaction

• The first gold coins were minted in Lydia (modern-day Turkey) around 550-600 BC, under King Croesus.
  • These coins (the “Croeseids”) standardised gold purity for trade. 
• Even before pure gold coins, Lydia used electrum (a natural alloy of gold and silver) for coins. Because electrum’s gold content varied, its value was less predictable. 
• The Daric of the Achaemenid Persian Empire (introduced under Darius I) was a gold coin of high purity (~95.8%) and standard weight (~ 8.4 grams). It was used broadly, including in international trade. 
• In medieval Islamic civilizations, the gold dinar (first struck under the Umayyad Caliphate around 696-697 CE) became a widespread medium of exchange. 
• Beyond coins and formal standards, gold has long served as a display of wealth, power, and prestige: from Egyptian pharaohs’ burial masks, to temples, to royalty using gold as tribute, gifts, or a diplomatic item. Its symbolic value reinforced its monetary role.
• In many cultures, gold was used in forms other than coins: ingots, bars, jewelry, and even “barter rings” (like in pre-colonial Philippines), where the metal itself was money and a status object.
• Gold was influential under the Gold Standard era (late 19th to early 20th century). National currencies were pegged to gold. Paper money could be converted into physical gold. This system underpinned much of global trade and currency stability.
• After World War II, under the Bretton Woods System, major world currencies were pegged to the US dollar, which itself was convertible to gold at a fixed rate ($35/ounce). This gave the dollar a quasi-gold-backed status. That system ended in 1971 when the US unilaterally ended convertibility (the Nixon Shock).
  • The need for more control over money printing was the reason, leading to a similar announcement as when FDR suspended the gold standard in March 1933, as the US was recovering from the Great Depression.

Related: The Past 500 Years of Financial History and Impact on Modern Portfolios