Gold is viewed as the ultimate safe-haven asset by many investors.
It's not hard to see why.
For one, gold has been used as an investment and as a store of wealth for thousands of years, far longer than institutions like the stock and bond markets have even existed.
For another, gold has the distinction of being used as a currency for most of human history. In fact, the period between when President Nixon removed the US dollar from the gold standard in 1971 and today is actually an outlier in history. Almost every other period has seen the major currencies of the world backed by gold.
Gold is a physical asset that doesn't tarnish or rust with age, and indeed is virtually indestructible. Its universal desirability amongst humanity is incontrovertible.
Gold has seemingly been vindicated as a fantastic investment in recent years, too. Just three years ago, the precious metal was trading at around US$1,700 an ounce. At the time of writing, that same ounce has exploded to US$3,380 after hitting a new record high of US$3,500 earlier this year.
However, these stunning gains in recent years might be hiding gold's true nature as a less-than-desirable investment. That's the belief of one expert, anyway.
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Expert tells investors to be wary of gold's allure
As reported in the Australian Financial Review (AFR) this week, Bhanu Singh, the chief executive and investment director of Dimensional Fund Advisers, reckons investors need to take a longer-term approach when analysing gold's suitability as an investment. He believes gold might not be as safe as investors may think. Singh was quoted as stating this:
When times get tough people go to gold, and that might make intuitive sense, but when you look at the longer-term data it doesn't hold up.
Singh argues that a true safe-haven asset should offer both low volatility and predictable returns in all economic circumstances. Gold, Singh says, does not fulfil either criterion:
People don't realise that gold as an asset class is more volatile than equities. If you're able to go in and out at the right time, sure, you can make a killing. But if you're looking for steady, long-term investment growth … then gold doesn't seem to hold up…
Gold as an asset class doesn't make sense because there's no basis for its return.From my viewpoint, it's quite speculative. Commodities don't generate cash flows, so their return … is basically driven by what somebody else is willing to pay.
The Dimensional director points to statistics that show the yellow metal enjoyed an increased price in just over half of the years between 1980 and 2024. That compares to a positive return in 73% of those years for ASX shares.
Further, he notes that gold returned an average of 6.7% per annum between 1990 and 2025, well below the 8.1% return of the MSCI World Equities Index – a benchmark of global stock market performance.
This is important for investors to remember. One can't buy a supposedly 'safe haven asset' and expect it to outperform assets that are higher on the risk-reward spectrum, like shares. That would be having your cake and eating it, too.
