Visions of James Bond
Imagine my delight when I saw a notification alert on my iPhone that Senator Rand Paul recently made a personal visit to Fort Knox. His ostensible project: verifying whether or not the nation’s gold reserves were still intact.
My mind went immediately to the classic James Bond Goldfinger movie. I could hear the iconic Shirley Bassey swooning the lyrics (“Goooldfingaaah!”) and envisioned Oddjob throwing a lethal bowler hat in Rand Paul’s direction. He sped away in a tricked-out Aston Martin while the brassy Bond theme commenced… (If none of this makes sense to you, we can never be friends.)
I snapped back to reality. Surprise! Rand Paul confirmed that Fort Knox is, in fact, full of gold. Piles of gold. None of the guards had been rendered unconscious by a secret nerve gas. And to no one’s surprise and my great chagrin, he used his field trip as a platform to talk about the virtues of gold and the evils of monetary inflation caused by government overspending.
Rebuffed and Rebuked
Another mental association quickly sprang to mind. You see, some 15+ years ago or so, I was politically vibing with Rand’s father, Congressman Ron Paul. I had become convinced that fiat currency decoupled from the gold standard was the root of all manner of ills – and that Ron Paul’s message of “end the Fed” / “audit the Fed” was the solution.
It made perfect sense to me, so I decided to be vocal about all of this on my Facebook account in support of Ron Paul for President. A friend whom I deeply respected (their name rhymes with Navid Hahnson – IYKYK) replied with an emphatic comment to stop being ignorant and spreading ignorance. Or something to that effect. I think young people call it “getting flamed.”
I bear a minor mental scar to this day from that experience. But it sent me on an intellectual journey about gold, monetary policy, the Federal Reserve, inflation, etc. And of course, it turns out that my esteemed friend was right. I was ignorant and spreading ignorance. While there are certain truths embedded in the Ron-Rand Paulian school of thought about such matters, they are often accompanied by distracting political rhetoric.
The Intuitive Case for Gold
Our mission today is not to address every said distraction. I think we can have a productive discussion about gold without engaging in every piece of the macroeconomic context. And believe it or not, I have a lot of conversations with investors about gold as a Private Wealth Advisor. I probably talk about gold more than I talk about AI, passive index funds, or the S&P 500. As I reflect on these conversations, I realize that there are several fundamental beliefs driving investor energy behind gold. Among them:
- Capital Preservation: Gold has stood the global test of time as a store of value by individuals and governments alike. We’re not talking decades; we’re talking millennia.
- Durability: The intrinsic value of gold cannot be easily manipulated or destroyed like currencies, companies, and markets. There’s a certain unstained purity to this element on the Periodic Table.
- Currency Debasement: Government fiscal-monetary policies are purposefully debasing currency in an attempt to paper over entrenched structural deficits/debt.
- De-Dollarization: Geopolitical dynamics are causing central governments to diversify into gold as a way to avoid U.S. sanctions.
- Crisis Insurance: If/when there is a genuine crisis that destabilizes our current market system(s), physical gold may prove to be the ultimate safe haven asset.
Of course, we could further steel-man the case for gold with other sophisticated arguments. My point is that even without sophisticated analysis, these basic intuitions carry weight.
You might think my project is to falsify those basic intuitions point-by-point, but you would be wrong. Instead, we want to evaluate these beliefs alongside other truths and concerns. One of the marks of wisdom is the ability to hold different perspectives in tension with one another. When we fail to do that with our most basic beliefs, we often end up with a brittle grasp of reality that leads us to unproductive outcomes.
The Valuation Conundrum
The first tension we need to hold in our minds has to do with how we determine economic value as investors. Economic value always contains an element of subjectivity, but investors still need some rational framework for assessing what an asset is worth. Different asset classes give us different tools for doing that. Consider a few examples:
- Commodities: Think about raw goods and materials that are either grown (beef, soy, wheat), mined (copper, tin, silver), or extracted (crude oil, natural gas). In each case, price discovery is a function of existing supply constraints against demand dynamics. Demand is generally defined by commercial utility driven by consumer consumption and industrial use.
- Real Property: We’re talking about land and various kinds of buildings. Real property valuations tend to depend on the use-case and how it will be monetized. We do not use the same valuation methods for personal residential property (comparative sales), commercial property (net operating income), or farmland (acreage yields), but they all come down to some form of cash flow or utility analysis.
- Human Enterprises: Consider businesses and their related financial instruments (stocks and bonds). These entities create value by transforming raw materials and human labor into goods and services. When a manufacturer makes a tube of toothpaste, they create economic value that is greater than the simple sum of its constituent material parts. And that excess economic value they create is what we call “profit.” When we can extrapolate those profits for some time into the future, we can mathematically discount those cash flows into a discernible net present value, from which we derive a theoretical price.
Gold is obviously a commodity, but it is unique. Notice that gold’s relative commercial utility is quite low. It has some cosmetic and limited industrial applications, but it is not consumed or applied in the same way as tin or copper. And it goes without saying that gold does not create income streams like real property or human enterprises. The demand for gold is driven more by its perceived proxy-value as a monetary substitute.
Investing vs. Speculating
This all means that gold’s economic value is highly SPECULATIVE in nature. I’ve been dying to use a quote from David Bahnsen’s new book, “Profit from the Profit,” so here goes:
An investment that has no internal rate of return is called a “speculative investment.” An internal rate of return is the yield that comes either from the price of time, like interest, or the creation of value, like profits. (page 37 of “Profit from the Profit”)
In one sentence, David just said what I attempted to say in multiple paragraphs. (Sigh.) Gold pays no time-related interest and creates no added transformational value in the form of profits. Gold’s value is driven far more by what market participants are willing to pay for its scarcity and perceived monetary value than by consumptive utility or internally generated cash flows.
Because the price of gold is largely speculative in nature, making money on gold is largely a function of price-TIMING. It might be pushing it to call this “trading,” but it isn’t far off. Yes, you can buy low and sell high and get a positive return. No doubt about it. But let’s recognize what it means to be invested in gold.
The Currency-Inflation Hedge Connection
But wait a minute. Can’t we trace gold’s price with inflation (CPI) and the steady debasement of the U.S. Dollar? If gold is a money proxy, wouldn’t inflation be the main predictor for gold’s value?
Statistically speaking, gold is NOT highly correlated with CPI over the long run. According to the World Gold Council, since 1971, only 16% of the variation in gold prices can be explained by changes in CPI inflation. The relationship can strengthen considerably over certain shorter periods, but it has been inconsistent and time-varying.
And therein lies the problem. Namely, holding gold long-term is not necessarily the steady and predictable hedge against consumer price inflation many people assume it is. But why? Because gold isn’t hedging your weekly grocery bill; the stronger long-run relationship appears to be the systemic expansion of the broad money supply (M2).
If you talk to a die-hard goldbug, they’ll mock the CPI. They’ll tell you that gold is a rock-solid shield against currency debasement and central bank money printing. And statistically, they have a point. Spanning the last 50 years, academic researchers have found that gold does indeed have a stable relationship with U.S. M2 money printing and currency debasement.
But here is the complication the goldbugs won’t tell you: “long-term” in the academic world doesn’t mean your investing lifetime. Sophisticated wavelet-based studies show that over short-to-medium horizons of 2 to 32 months, gold’s correlation with inflation and money printing is virtually non-existent, making it a highly volatile and ‘leaky’ shield.
If you bought gold as an M2 hedge at its peak in 1980, you watched the money supply balloon year after year while your gold portfolio collapsed. You had to wait twenty-six years just to get your nominal dollars back, while a simple index of compounding, dividend-paying companies went on one of the greatest wealth-generating runs in human history.
Doing Math on Gold
I’m thinking of an old friend of mine who is a die-hard goldbug, and I can just hear him howling in protest: “But the price of gold in 2025 was up almost 67% on the year! Forget your abstract mumbo-jumbo valuation theories and correlations and just look at the mathematical returns!”
I quite agree. Let’s look at the math and then circle back to the principles at stake…
For the record, it is true that the price of gold rose dramatically in 2025 and outperformed the S&P 500 by almost 3.5x. If you made that trade in 2025, I couldn’t be happier for you. The next round of drinks is on you, my friend. I’ll take my martini served up. Shaken, not stirred.
I’m going to cut right to the chase because the math is devastatingly clear. The chart I’m going to lean on is provided by Aswath Damodaran, NYU Stern School of Business, “Historical Returns on Stocks, Bonds and Bills,” January 2026. I STRONGLY urge curious readers to navigate there and spend some time with it.
For those who are growing weary, I’ll give you two highlights from the dataset in nominal (not inflation-adjusted) dollars:
- If you invested $100 in gold in 1928, the value at the end of 2025 would be $21,025.41.
- If you invested $100 in the S&P 500 (dividends reinvested) in 1928, the value at the end of 2025 would be $1,157,598.95.
Math is hard. Let’s go ahead and break out our calculators… Wow. That is 55x more wealth!
Now what could possibly cause such a dramatic mathematical difference?! Oh – surprise – it is those pesky abstractions we outlined at the top of the article. The answer is simple, my friends. It is the power of a compounding internal rate of return created by reinvested cash flows in transformative human enterprise. Gold is rare and durable and shiny and old as the hills, but it doesn’t produce cash flows that can be reinvested.
Granted, my goldbug friend has a fair point: this 1928 comparison includes decades when the U.S. government artificially fixed the price of gold at $35 an ounce under monetary regimes like Bretton Woods, which hand-cuffed its growth.
But even if we let gold run wild after Nixon closed the gold window in 1971, the compounding math still tells the same story. Since Q1 1971, gold has posted a decent nominal compound return of 8% to 10% according to historical data from the World Gold Council. Adjusted for inflation, that translates to a real return of 2.0% to 3.6%. While it’s a lot better than a baseball card collection, it still gets thoroughly dusted by the compounding magic of corporate profits.
Average Gold Prices & Real CAGR (1972 – 2020)
| Starting Year | Avg. Gold Price | Price in 2025 Dollars | Real CAGR through 2025 |
|---|---|---|---|
| 1972 | $58.42 | $450 | 3.91% |
| 1975 | $160.86 | $963 | 2.58% |
| 1980 | $615.00 | $2,403 | 0.80% |
| 1985 | $317.00 | $948 | 3.27% |
| 1990 | $383.51 | $945 | 3.75% |
| 1995 | $383.79 | $811 | 4.93% |
| 2000 | $279.11 | $522 | 7.82% |
| 2005 | $444.74 | $733 | 8.02% |
| 2010 | $1,224.53 | $1,808 | 4.36% |
| 2015 | $1,160.60 | $1,576 | 8.09% |
| 2020 | $1,769.64 | $2,201 | 9.28% |
Sources: National Mining Association, Historical Gold Prices—1833 to Present; World Gold Council, Gold Demand Trends: Full Year 2025; U.S. Bureau of Labor Statistics, CPI-U. Gold prices and CPI represent annual averages; real returns are expressed in constant 2025 dollars. August 20, 2026
Gold as Insurance?
But Brett, what if the U.S. economy suffers a catastrophe? What if the U.S. Dollar is no longer the reserve currency of the world? What if…?
Look, you don’t need a full-blown zombie apocalypse to find a practical use for gold. Let’s talk about something much more common: a nasty stock market correction. Historical analysis by Erb and Harvey (2025) shows that during the last 11 major stock market drawdowns since 1975, the price of gold actually rose in eight of them and fell by far less than the S&P 500 in the other three. Because gold has a historical correlation to equities that sits right around zero, it acts as a reliable shock absorber when your stock portfolio is taking a beating.
But here is the catch that many gold promoters conveniently gloss over: gold is a highly volatile, completely non-yielding insurance policy. Traditional insurance has a fixed cost and a guaranteed payout. Gold has neither. If you buy gold at the top of a speculative cycle, your ‘insurance policy’ can bleed value for decades. Look back at our table: if you bought gold in 1980 at its average price of $615 (which is an eye-watering $2,403 in 2025 dollars), your real compound annual return over the next 45 years was a pathetic 0.80%. That is a massive, multi-decade opportunity cost, not a safe haven.
And if you are looking at today’s record price surge past $3,000 an ounce and thinking, ‘See, I need to buy now for safety,’ think again. This recent surge isn’t being driven by everyday folks hoarding Costco bars out of panic. It is driven by massive structural, geopolitical forces. Since the U.S. froze Russian central bank assets in 2022, foreign central banks have been aggressively de-dollarizing to hedge geopolitical risk.
Gold is the ultimate sanction-proof reserve asset, and central banks are stockpiling it in record amounts. Those purchases are being driven by geopolitical considerations that have little to do with everyday investors buying gold for safety. But remember, buying at record highs has historically led to much lower future returns
But let’s think about truly extreme, systemic crises – the kind where people think they’ll be bartering with gold coins in a collapsed society. In short, if you own a gold ETF or other gold-based fund, then ostensibly you are hosed because the whole system has short-circuited. Did you plan to convert the ETF to dollars? Oh wait… Good luck, and let me know how it pans out for you.
And if you have a big safe with physical gold in it… I’m not sure if gold will matter at all. If it does, I hope you have an armed militia guarding the safe. I’m sorry (not sorry) to be glib, but if severe left-tail risks are really on the table, then let’s get real about post-apocalypse reality. Even if I were to grant that there may be scenarios where physically portable gold has crisis utility, look how far we have ventured from portfolio construction.
Answering The Question
So is gold a good investment? As investors, we have to always ask ourselves at least two questions: “What is the investment goal and time horizon?” and “Compared to what?”
For most investors I am working with, the case for gold does not stand up well to those questions. Gold is scarce. Gold is durable. Gold has preserved value across civilizations. Gold can appreciate dramatically and may even provide useful diversification in certain environments. None of those statements require us to conclude that gold is a compelling investment. For that, we prefer some mechanism for creating economic value—and some rational basis for determining what we’re willing to pay for it.
Think more like Lucy, the Peanuts character, and less like Goldfinger. Given the choice, I’ll take cold, hard cash(flow) – compounding included.
Brett Bonecutter
Private Wealth Advisor
