The World Gold Council released a study on October 18, 2024, stating projections for gold's performance over the next 15 years indicate an annual average return of 5.2 per cent. This return is better than other investment classes, such as intermediate US Treasury bonds, anticipated to yield 3.9 per cent, and World government bonds, expected to return 4.8 per cent, the study found. The returns are calculated based on a study using "external forward estimates for GDP growth and the global portfolio".
Meanwhile, US large-cap stocks are expected to generate a 7 per cent annual return, slightly below their historical 20-year performance.
Assumptions of Study & Drivers of Gold Returns
The report claims that WGC analysis revealed that GDP growth is the primary driver of gold prices in the long term. Analysts found that focusing narrowly on factors like inflation, interest rates, or mining costs, may not provide a complete picture of gold's value, for the following reasons.
Gold’s Key Drivers
First, gold has significantly outperformed both inflation and the risk-free interest rate: its average annual compounded return (in US dollars) from 1971 to 2023 was 8 per cent for gold vs 4 per cent for US CPI and 4.4 per cent for the US 3-month Treasury. The probability that such excess returns are due to chance, rather than a characteristic of gold, is very low.
Several key elements are identified as crucial drivers of gold's performance. Economic expansion plays a significant role, WGC says, adding periods of growth periods of growth are supportive of jewellery, technology and long-term savings.
Further, gold shines as a safety net during times of risk and uncertainty.
Market downturns, inflation and geopolitical risk often boost investment demand for gold as a safe haven. Further, the price of competing assets, including bonds and currencies, influences investor attitudes towards gold and capital flows, positioning and price trends can boost or dampen gold’s performance.
