Source: Jin Shi Data
For most of the past half-century, U.S. Treasuries have easily outperformed as a buy-and-hold investmentbabaijebujackpotresultgold. Today, U.S. Treasuries 'status as the ultimate safe haven is facing one of the largest challenges it has never seen before.
Investors have traditionally flocked to U.S. Treasuries as an ultra-safe investment backed by world economic powers and paying stable incomes. For buyers from individual savers to sovereign states, these qualities make it a better investment option than gold, which, while still popular as a scarce commodity and an inflation hedge, does not generate cash flow like bonds.
This relationship has been changing recently, and recent trends have been in gold's favor. The benchmark Bloomberg U.S. Treasurys Total Return Index is heading for its third annual decline, widening to 11% since its 2020 peak. By contrast, gold hit a new high this week, recording a return of 15% so far this year alone.
US debt/gold investment return fell below decades-old support line
Kristina Hooper, chief global market strategist at Invesco, said the divergence in the performance of the two traditional safe-haven assets reflects investors 'deep concerns about soaring U.S. government debt and a growing preference for real assets.
"The preferred safe-haven asset has become gold over U.S. Treasuries," Hooper said."The bigger theme is concerns about the U.S.'s huge debt and concerns about the unsustainable U.S. fiscal situation."
This divergence in performance means that gold has surpassed U.S. government debt as a long-term investment. The dollar invested in gold 51 years ago is now worth $2314,$172 more than the return delivered by the Bloomberg U.S. Treasury Bond Index, which was launched in 1973. (This comparison does not take into account the storage costs of holding gold)
Gold's 50-year return exceeds U.S. Treasuries
In many ways, the recent woes of U.S. Treasuries are easy to understand. This is mainly due to the Federal Reserve's aggressive monetary tightening actions since 2022, which have pushed up U.S. Treasury yields and hit U.S. bond prices hard.
The rise in gold is even more difficult to interpret. In theory, a rise in real interest rates (i.e., inflation-adjusted rates) should reduce the appeal of gold, making assets that do not generate any yield less attractive. However, gold prices continue to rise.
Analysts pointed out that central bank purchases are one of the main forces driving gold's rise. For example, the People's Bank of China has increased its gold reserves for 18 consecutive months while reducing its holdings of U.S. Treasury bonds.
At the same time, deep-seated concerns about rising U.S. debt and deficits have sparked broader credit concerns. Growth in U.S. Treasurys has accelerated since the epidemic, nearly doubling in the past decade to about $35 trillion.