Gold's 25-Year Outperformance, and Why It May Continue

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Gold has spent years being dismissed as a relic: something conservative investors hold quietly while the market chases newer stories. The problem with that framing is that the numbers have been telling a very different story for a long time.

From 2001 through the present, with dividends reinvested, gold has outperformed the S&P 500. The same is true over the last ten years. These stats do not fit the cultural picture of gold as a defensive asset that you tolerate rather than allocate to, and many portfolios still reflect the cultural picture rather than the numbers.

Why Gold’s Long Climb Suddenly Accelerated

The current run began in late 2023. Gold went from roughly $1,800 an ounce to a peak near $5,500 before settling around $4,700 at the time of writing. The proximate catalyst was a reset in global risk pricing. The structural catalysts had been building for longer. Central banks were already buying gold at a scale not seen in the modern era. They have now purchased roughly 1,000 tons per year for four years running, an unprecedented stretch.

When a central bank purchases gold, the metal generally goes deep into reserves and is not actively traded. So, the buying is doubly bullish. The flow into the market reduces available supply, and the existing holdings sit on the sidelines. Add a wave of retail interest from China and India, where culture and family memory still place gold close to the center of personal wealth, and you have demand pressing into a supply curve that is not responding.

The Global Supply Problem Beneath the Gold Rally

Despite a tripling in price over the last several years, gold mining production has flatlined for the past five to six years. New deposits take 15 to 20 years to bring online from discovery, which alone explains some of the lag. 

Existing producers, however, should mechanically expand output when prices rise, because lower-grade ore becomes economically viable. That has not happened. The reasons are not mysterious, just additive. Equipment costs more and skilled labor is harder to find. Environmental and permitting requirements are stricter. Political risk in mining jurisdictions has risen. The easy ore has been depleted. Higher prices are not pulling supply forward the way the textbooks say they should.

This is arguably one of the cleaner setups a long-only investor will see in a major asset class. Demand is structural, supply is constrained, and the two are accelerating away from each other.

Why Bitcoin Is Not Digital Gold

The dominant narrative over the past few years has been that Bitcoin is the technological evolution of gold. The current cycle has challenged that comparison in important ways.

Bitcoin has experienced multiple drawdowns of roughly 50% in its short history. An asset that can lose half its value in a matter of weeks or months may still deliver strong long-term returns, but it behaves very differently from a traditional store of value. Gold, by contrast, has spent thousands of years preserving purchasing power across wars, currency resets, political upheavals, and financial crises.

The distinction is not really about technology. It is about what investors are actually buying. The investor who reaches for Bitcoin is placing a bet on the adoption and durability of a new financial technology. An investor buying gold is placing a bet on the persistence of one of the oldest monetary and social agreements in human history.

Both can succeed, but only one has already been tested across centuries of economic and political stress.

Investors are Increasing Their Gold Allocations

The most consequential development in gold is happening at the allocation level. The average American portfolio still holds about 2.8% in gold. Last fall, Morgan Stanley's CIO Mike Wilson moved from a traditional 60/40 framework to a 60/20/20 framework, with twenty percent in gold. Other respected voices are now recommending allocations of five, ten, fifteen, even twenty-five percent.

The arithmetic of what happens if those recommendations move from the margin to the mainstream is striking. The bond market is roughly ten times the size of the gold market in terms of capital deployed. Even modest reallocation out of bonds and into gold creates a price impact that the supply side cannot absorb. This is the kind of slow, large-pool rebalancing that produces multi-year trends, not a single year or quarter rally.

Should You Own Physical Gold or a Gold ETF?

One question that comes up repeatedly during every gold cycle is whether investors should own physical gold or simply buy a gold ETF. The answer depends less on which one is “better” and more on what role gold is meant to play inside the portfolio.

A gold ETF provides investors with efficient exposure to gold prices. It is liquid, easy to trade, simple to size within a portfolio, and accessible through a brokerage account. For many investors, that convenience is the entire point.

Physical gold is different. It is not just exposure to the price of gold. It is direct ownership of the asset itself. That distinction may seem unimportant during normal market conditions, but it becomes more meaningful during periods of financial stress, currency instability, or institutional distrust, which are often the very environments that drive investors toward gold in the first place.

The behavioral difference matters too. Investors who hold physical gold often treat it less like a trade and more like a long-term reserve asset, similar to the way central banks treat their own holdings. It is accumulated gradually, stored securely, and rarely traded. ETF investors, by contrast, are usually optimizing for liquidity, flexibility, and portfolio efficiency.

Both approaches are valid. But they serve different purposes, and treating them as interchangeable can lead to confusion about what gold is actually supposed to do in a portfolio.

What Individual Investors Can Learn From Central Banks

Most retail investors approach gold reactively. They ignore it when prices are stable, become interested once headlines turn bullish, then panic during the first meaningful correction. This cycle is usually driven more by emotion than by allocation discipline.

The large structural buyers in this market, particularly central banks, tend to behave very differently. They are not chasing momentum or trading headlines. They accumulate gradually, often adding during periods of price weakness rather than strength. Their approach is less about prediction and more about long-term reserve management.

For individual investors, the useful lesson is not necessarily to own large amounts of gold. It is to decide in advance what role gold should play inside the portfolio, what allocation feels appropriate, and under what conditions additional exposure makes sense.

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DISCLAIMER: This article is based on a conversation from Top Traders Unplugged and reflects themes, ideas, and perspectives discussed during the episode. The views expressed are those of the guest and participants in the conversation and should not be interpreted as investment advice or as the official views of Top Traders Unplugged.

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