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With gold prices this summer hitting all-time highs set nine years ago, many investors may be bullish on bullion. After all, gold is reputedly a stable store of value when fears are high — and myriad worries now dog investors: new COVID-19 outbreaks, rising China-U.S. tensions, sky-high unemployment, the weakening dollar, burgeoning government debt and predictions of big inflation. But Fisher Investments thinks you shouldn’t let gold’s shine entrance you. Our research indicates gold is merely a commodity — one offering low long-term returns and requiring near-perfect market timing to profit from, making it unsuitable for most investors’ portfolios.

Many view gold as a stable store of value, much safer than stocks. The companies behind stocks can see profits plunge or even go bankrupt. Not so with gold. Gold’s history adds to its allure. Societies have considered it precious for thousands of years, using gold in jewelry and decorations or as currency.

Gold’s relatively stable supply adds to its store of value — and offers a hedge against inflation, many contend. Central banks can’t just create gold from thin air. According to the World Gold Council, miners extract about 2,500 to 3,000 tons of gold annually, a 1% to 2% increase on current above-ground supply.[i] Governments and central banks, however, can and do increase fiat-money supplies dramatically at times — like now. Increasing money supply can drive inflation up. So, during such times, pundits often tout gold as a valuable inflation hedge.

Despite its allure, gold’s long-term returns are poor — and it often fails to protect during downturns or high inflation. Since the date it became legal for U.S. citizens to own gold, on Dec. 31, 1974, gold has a 5.3% annualized return.[ii] Over that period, the S&P 500 has a 12.0% annualized return.[iii] A $10,000 investment in gold would have grown to about $105,000 over that stretch. Sound good? The same investment in the S&P 500 would now be worth over $1.75 million.

Moreover, gold has often struggled when it was supposed to excel. During global stocks’ 1980-1982 bear market, gold plummeted -46.0%.[iv] In the 2007-2009 bear market, gold beat stocks but plunged for much of the downturn. From March 2008 through October 2008, it declined -24.8% — hardly a stable store of value.[v] During the recent downturn, gold fared much better than stocks but still lost value, declining -4.9% during the bear market.[vi] From March 6 to March 19 — amid the panicky plunges of this year’s equity bear market — the S&P 500 fell -18.8%.[vii] Gold dropped 12.4%.[viii] Virtually all of gold’s positivity this year came after stocks’ bear market had ended.

Gold’s reputation as a great inflation fighter also misleads. Amid sky-high U.S. inflation of 13.5% in 1980 and 10.3% in 1981, gold fell a total of -22.4%.[ix] When the U.S. inflation rate climbed from 1.9% in 1986 to 5.4% in 1990, gold was about flat.[x] For most of the 1990s, prices rose steadily while gold languished. To us, that is a pretty ineffective hedge.

A final strike against gold: Its higher long-term volatility compared to stocks — due, ironically, to the supply constraints that supposedly lend bullion stability, in our view. Relatively fixed supply means demand mostly moves prices. Gold has very limited industrial use, so most physical demand comes from jewelry and central banks. The latter’s moves are largely telegraphed well in advance, sapping surprise power over prices. In 2013, global central bank buying rose 10.6%.[xi] Gold prices fell 28.9%.[xii] In 2016, global central bank buying plunged 31.9%.[xiii] Gold prices jumped 8.1%.[xiv] From 1999 to 2002, the U.K. famously sold off all its gold—seemingly a bearish cut in global demand. Gold prices then more than tripled from 2003 to 2010.[xv] So much for bearish.

That leaves investor sentiment as the swing factor. It sparks big booms — and big busts, not to mention more volatility than stocks. From the end of 1974 through July 9 of this year, the standard deviation — the degree to which returns fluctuate around an average — of gold’s returns was 24.6%.[xvi] Stocks’ was 16.1% over the same stretch.[xvii] Reaping big returns with gold essentially requires investors to time sentiment perfectly — impossible to do consistently, in our view.

Plus, gold doesn’t generate earnings, pay dividends or develop innovations that create wealth. It can’t adapt to challenges and new developments. The companies behind stocks do. At least with gold-mining stocks, firms can adjust to changing conditions, cutting costs to boost earnings or returning shareholders’ money through dividends or buybacks — and still benefit if commodity prices remain high. But presently, we think gold miners’ generally small presence and value tilt argue against a big overweight.

Investors who see gold as a portfolio panacea in turbulent times buy into a myth, in our view. Gold’s long-term performance shows it provides neither the stability nor the long-term performance many seek.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i] Source: World Gold Council, as of 07/30/2020. Statement based on 2019 year-end above-ground gold stock of 197,576 tons and annual mining production of 2,500–3,000 tons.

[ii] Source: FactSet, as of 08/03/2020. Gold price, 12/31/1974–07/31/2020.

[iii] Source: Global Financial Data, as of 08/12/2020. S&P 500 Total Return Index, 12/31/1974–07/31/2020. Monthly return data due to availability of daily returns.

[iv] Source: FactSet, as of 08/10/2020. Gold price return, 11/28/1980–08/12/1982.

[v] Source: FactSet, as of 08/10/2020. Gold price return, 02/29/2008–10/31/2008.

[vi] Source: FactSet, as of 08/10/2020. Gold price return, 02/19/2020–03/23/2020.

[vii] Ibid. S&P 500 total return, 03/06/2020–03/19/2020.

[viii] Ibid. Gold price return, 03/06/2020–03/19/2020.

[ix] Source: World Bank and FactSet, as of 08/12/2020. US inflation rates, 1980 and 1981. Gold price return, 12/28/1979–12/30/1981.

[x] Source: FactSet and World Bank, as of 8/10/2020. Gold price declined -0.7% from 12/30/1986 to 12/28/1990 while US inflation rate rose from 1.9% in 1986 to 5.4% in 1990.

[xi] Source: World Gold Council, as of 08/10/2020.

[xii] Source: FactSet, as of 08/10/2020. Gold price return, 12/28/2012–12/30/2013.

[xiii] Source: World Gold Council, as of 08/10/2020.

[xiv] Source: FactSet, as of 08/10/2020. Gold price return, 12/30/2015–12/29/2016.

[xv] Source: FactSet, as of 08/10/2020. Gold prices rose 304.8% from 12/30/2002 to 12/30/2010.

[xvi] Source: Global Financial Data, as of 07/09/2020.

[xvii] Ibid.