On September 10, 2001, gold closed the day at around $271.50 per ounce. Twenty years later, gold is trading near $1,800 per ounce—far outstripping inflation or the stock market in terms of growth. Why such a meteoric rise? Join U.S. Money Reserve, America’s Gold Authority®, as we look at the past 20 years of gold, examine what caused such a dramatic increase, and see whether some of those same contributing factors still exist today.
Purchasing Power of the U.S. Dollar from 2001 to 2021
To give you an idea of how gold has performed over the past 20 years, it’s worth comparing the purchasing power of the U.S. dollar with the price of gold during the same time. As you’ll see, the two assets moved in opposite directions over the last two decades, with the purchasing power of the dollar decreasing and the price of gold increasing.
The following chart shows the purchasing power of $1 from 2001 to 2021.
As you can see, the purchasing power of the U.S. dollar has fallen steadily since 2001. That year, it stood at 97 cents per dollar. In 2021, that figure sits at 63 cents per dollar. That’s a drop of 35%.
“A dollar doesn’t buy nearly as much as it once did, as the cliché goes. Since the early 20th century, the decline in the value of the dollar has been dramatic due to inflation. A dollar in 1913 had the same buying power as $26 in 2020,” according to The Balance, a personal finance website.
The Balance cites three factors that contribute to inflation:
- Heightened demand for products and services
- Constraints on the availability of supplies for goods and services
- Increased printing of money
Price of Gold from 2001 to 2021
During the same period, 2001 to 2021, the price of gold soared more than 570%. That’s a stark contrast what happened to the purchasing power of the U.S. dollar.
The following chart shows the price of gold per ounce from 2001 to 2021.
The price of gold per ounce notably spiked in 2011 and 2020. In 2011, the U.S. was still climbing out of the economic hole dug by the Great Recession (2007 to 2009) and dealing with rising concerns over the eurozone debt crisis and the U.S. debt ceiling. Meanwhile, in 2020, the U.S. and the rest of the world grappled with an economic downturn triggered by the COVID-19 pandemic.
In 2021, the average closing price of gold stands at $1,801.61 per ounce. The average closing price of gold has stayed above $1,000 per ounce since 2010. Between 2001 and 2009, the average closing price rose from $271.19 to 973.66 per ounce.
Clearly, gold does more than just react to inflation or short-term gains or losses in the stock market. It’s also an impressive asset in its own right—and one many use as a diversifier in their portfolio.
In a historical analysis of whether or not gold was useful to portfolios in the past, the CME Group found that:
- Having gold in a portfolio would have been marginally beneficial in both the long and short terms.
- Gold has a much lower risk-adjusted excess return over time than either government bonds or stocks.
- What makes gold attractive is that it also has a low correlation to both stocks and bonds and is thus a useful portfolio diversifier.
What to Watch in the Gold Market
For the rest of 2021 and beyond, keep an eye on inflation as a factor in the movement of gold prices. Analyst David Lennox of Fat Prophets told CNBC that an uptick in inflation could be a “boon” for gold.
“Inflation’s coming back because we’ve seen such a significant surge in [the] U.S. money supply,” Lennox said in June 2021. “Whenever we’ve seen that surge in the past, it’s been accompanied—probably five of six months later—by higher inflation.”
Why Adding Gold to Your Portfolio Matters
Diversification matters more than ever. With the national debt and the rate of inflation increasing, we all need to ensure that our wealth is protected. And while everyone’s financial situation—and thus their asset mix—is unique, we must do what we can to ensure that we’re prepared for whatever awaits us in the years to come. This preparation might include buying gold to put in your portfolio.
Historically, the price of gold goes up over the long term, holding onto its purchasing power, while the U.S. dollar weakens. So when the time comes to pass your wealth on to future generations, would you rather have all of your eggs in one basket or hold a diversified portfolio (including gold) that reduces your overall risk?