Chennai: With an annual expected return of around 5.2 per cent, gold’s return over the next decade could be influenced more by global economic growth and it will remain well above inflation, as per World Gold Council’s new framework for evaluating the long-term return potential of the metal.
The World Gold Council has released a comprehensive report titled Gold’s Long-Term Expected Return (GLTER), which introduces a new framework for evaluating the long-term return potential of gold. As per this framework, the estimated average annual gold return over the 2025-2040 period will be 5.2 per cent, same as global GDP growth and higher than 2.5 per cent US CPI inflation.
The evaluation is based on the findings that conclude that gold’s real return has outpaced inflation and is closely correlated with global GDP growth over the past 50 years.
The traditional views that focus on inflation as the main driver of gold’s price, lands on an expected long-run real return ranging between zero and 1 per cent.
However, gold’s return over the past 50 years from 1971, when Gold Standard came to an end, to 2023 shows that gold provided 8 per cent annual return, a tad higher than the global growth rate of 7.8 per cent. It was way higher than 3.9 per cent US CPI inflation. It was also higher than 4.4 per cent return from the US 3-month Treasury.
According to WGC, of the estimated above-ground stock of gold at 212,582 tonnes, 54 per cent is consumed as jewellery, 21 per cent as bars and coins, 17 per cent by central banks and only 8 per cent as financial investment. This links gold closely with economic growth.
