Is gold still worth investing in? Is the most well-known safe-haven asset outdated?

Gold prices have recently reached new highs, is it worth investing now? Let's analyze gold's practical uses, long-term investment returns, hedging and anti-inflation effectiveness, and see how it is positioned in the portfolio. (Synopsis: JPMorgan: Bitcoin's rally in the second half of the year will outperform gold!) BTC and MSTR simultaneously release bullish signals) (Background added: UBS: High net worth clients are abandoning the US dollar for gold, cryptocurrencies and Chinese assets) The price of gold has recently hit another record high, sparking heated discussions about the value of its investment. Since ancient times, gold, with its unique luster and rarity, has not only been a symbol of power and wealth, but also occupied the status of "ultimate value preservation" and "safe haven" in the hearts of many investors. But in the contemporary financial environment that has experienced decades of stock market bull markets, bond volatility and dramatic changes in monetary policy, what role should gold play in a rational portfolio from the perspective of cold investment data and objective analysis? Gold: Beyond Commodities and Currencies Gold is not a pure investment. According to the data, practical applications such as industry, medical and technology account for about 6-7% of total gold consumption. Historically, gold was the cornerstone of the global monetary system, the gold standard, but it was abandoned in the United Kingdom (1931) and the United States (1971), and its monetary use is now extremely limited, accounting for about 9% of total demand. The main use of gold is still jewelry, accounting for 47% of total consumption, and this demand mainly comes from regions such as India where there is a special cultural preference for gold, which can also be considered a collection. The remaining 37% of gold is stored in bars by central banks and individuals, based solely on its store of value and investment properties. Notably, around 80% of the world's mined gold is still in circulation or stored today, reflecting its enduring value identity. However, as a "non-yielding asset", gold is fundamentally different from stocks, bonds or real estate that can generate cash flow, which raises fundamental questions about the basis of its long-term investment value: how should the value of an asset that cannot generate cash flow on its own be constant and maintained? The test of historical data Comparing the long-term investment performance of gold with other assets such as the S&P 500 index, global stock markets and long-term US bonds, the data presents a relatively grim reality. Data from 1985 to the present (on a logarithmic scale) shows that gold is one of the worst-performing assets. Investing £10,000 (or USD equivalent) in gold over that period would have returned about $92,000, far worse than global equities, U.S. equities, and even U.S. long-term bonds. The price history of gold has also been full of volatility. For example, the price of gold fell from a high of about $664 an ounce in 1980 to about $256 in 1999, experienced a 19-year bear market, fell as much as 62%, and did not struggle to recover to the nominal price high of 1980 until 2006 (or later if inflation adjustment is taken into account). Despite gold's strong performance between 2001 and 2020 and its recent (2022-to-date) strong rally due to increased global uncertainty, this rally may have been influenced by a "recent bias" that masks its long-term mediocre performance. For example, gold price data from 1971 to 2024 shows that $100 invested in gold will grow to about $7,000, while investing in the S&P 500 index (including dividend reinvestment) can grow to about $26,700 over the same period, indicating that the long-term compounding effect of stocks is significantly better than gold. Rolling data over three decades also shows that gold's average annualised return (about 6.80%) is generally lower than that of the Nasdaq 100 Index (about 13.10%), S&P 500 Index (about 8.20%) and investment grade corporate bonds (about 7.20%). These data show that in the long run, gold's total return on investment is generally less than that of stocks and bonds, and the price is more volatile. Hazard avoidance aura fades? Gold is often seen as a safe-haven asset that provides protection in times of market turmoil, but this feature is not infallible. A famous paper "The Gold Dilemma" analyzed the monthly returns of gold and the S&P 500 index and found that the two fell in tandem about 17% of the time, indicating that gold failed to effectively play a safe-haven role in specific market scenarios. While other studies, such as Wisdom Tree's quarterly data analysis, suggest that gold provides a good hedge during the worst performing quarters of the S&P 500, different research institutions interpret the data differently, reminding investors to evaluate carefully. It is generally believed that gold's safe-haven function is more reflected in unexpected "black swan" events or market environments driven by investor panic. Compared to traditional safe-haven instruments such as US government bonds, the price of gold is significantly more volatile. For individual investors, assets that provide stable cash flow (such as bond interest or real estate rental income) may have more real support value than gold that needs to be sold to realise, especially given the risk that the price of gold may fall in tandem when the market falls. In an extreme crisis, the custody and liquidity of physical gold may face challenges, and its so-called "doomsday value" may not be as expected. Regarding the claim that gold is used as an anti-inflation tool, long-term data (inflation-adjusted) shows that gold is not the best choice. There is little significant correlation between gold prices and unexpected short-term inflation. Even in countries where hyperinflation is rampant, fluctuations in the global gold price can still have an impact on their local value, and sometimes holding US dollars or US Treasuries is a more effective hedge against the sharp depreciation of their currencies. In the first quarter of 2025, gold prices continued to climb despite a cooling of global inflation. The reasons behind this are complex, including the support provided by central banks to increase their gold reserves, the market's expectation of future interest rate cuts reducing the opportunity cost of holding gold, such non-interest-bearing assets, and ongoing economic uncertainty driving investor demand for safe-haven assets. Some believe that gold's status as a neutral reserve asset has increased in the context of a shift in the global monetary environment and the possible test of trust in traditional reserve assets (such as the US dollar and US bonds). Gold in the portfolio Overall, although gold has some obvious "shortcomings" at the level of pure financial investment, such as its non-yielding, long-term returns are usually inferior to income assets and volatile, its safe-haven and anti-inflation effects are not absolute and highly dependent on specific scenarios. But gold is still loved by investors today, and its real investment value may lie in its "uniqueness". Gold's low correlation with other major asset classes makes it a potentially effective risk diversification tool. In a market environment where other assets are generally falling, gold may perform out of sync, helping to reduce overall portfolio volatility and play an "insurance" role. In addition, gold's "physical portability" and thousands of years of human historical and cultural fascination with its formation are also part of its investment mentality, allowing gold to cross the rise and fall of empires and the currency changes of different countries, forming an eternal sense of identity. For individual investors, allocating to gold in 2025 should not be blindly chased because of the price increase in the past year. The key is to have a clear understanding of why you're investing in gold, what role do you expect it to play in your portfolio, and are you trying to diversify your risk? Dealing with potential extreme "black swan" events...