If you are interested in the past performance of gold bullion in Canadian dollars, you can find annual returns going back to 1970s in this spreadsheet on the Libra Investment Management website. The period between 1971 and 1980 was the golden decade — gold gained a total of 1759% in that time period or an astonishing 34% annualized rate. Since 1980, gold has gained just 50% in 29 years or a 1.5% annual rate. Most of that growth has been in the past decade in which gold has gained 140% or an annualized 9.14%. Year-to-date gold is up 16.75% in Canadian dollars.

[Gold Annual Returns in Canadian dollars, 1970-2008]

[Gold Returns Distribution for 1970-2008]

Some investors allocate a small portion of their portfolio to gold for diversification due to gold’s poor correlation with other asset classes. The data bears this out. The correlation between TSX Composite and gold bullion for the 1970-2008 time period is just 0.08. However, gold’s risk-reward profile leaves much to be desired. Since 1970 gold has returned 9% annually with a standard deviation of 29. By way of comparison, the TSX Composite has returned 9% with a SD of 17.

PS: The returns and standard deviation for gold were computed with the Upside / Downside Calculator available on the Stingy Investor website.

This article has 10 comments

  1. Interesting, given there are so many “Send us your Gold and we’ll give you CASH!” companies out there, it strikes me that the real money in Gold is in those companies!

  2. Great post CC.

    I have to be honest, I’ve never really followed Gold at all, though I have tiny bit of exposure in a diversified product. I never realized how ‘poorly’ it has performed since the 90’s, and how variable rates of returns have been.

    This info just reinforces my lack of desire invest in it.

  3. Until we start ‘consuming’ gold, it’s not going to be the rock star some expect. Speculation and emotion drive gold more than fundamentals. Nevertheless, we have to remember momentum moves markets, including the gold market… so we can’t write it off completely.

  4. Where did all the ‘pro’-gold investors go?

  5. Canadian Capitalist

    @Jason: I agree. I don’t write off gold or any other asset class completely because, like you note, markets are driven by momentum and sentiment. Even if we can tell clearly that investors have gone mad, there is no telling how much madder still they can get.

    @Sampson: This column in today’s Globe and Mail also points out that the risk/reward profile of gold is less than desirable:

    http://bit.ly/6HmA0Y

    “Going for the gold” now may be a strong bet against any prospect for recovery in the U.S. for the next decade or more, as well as a bet in favour of the emergence of new and greedy gold bugs enticed by recent record prices, bets I’m not personally willing to take.

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  9. Gold has been in a bull market since 2000. Do not overlook the implications of this market. Use gold as insurance in your portfolio. It acted very well during the market problems of the past year.

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