The U.S. men’s hockey team just won its third Olympic gold in history and its second since 1980. Two championships over four decades underscore how rare certain outcomes are. The 1980 “Miracle on Ice” at Lake Placid became iconic, not because it was predictable, but because it was extraordinary.
That same year, gold prices reached a dramatic peak, trading around $800 per ounce. High inflation, elevated geopolitical tensions, and widespread investor anxiety prevailed. Sound familiar?
Gold prices now hover near all-time highs over $5200/oz, sabers are rattling near and far, and investors are on edge.
The coincidence between an Olympic gold medal and a blowoff top in the price of gold in 1980 makes for a compelling narrative, but it remains a coincidence. The lesson is not about correlation. It is about rarity and emotion.
As a financial planner working with families focused on retirement planning, I find that gold’s appeal often rises during periods that feel uncertain. Those moments can be powerful. The discipline of long-term investing, however, requires us to evaluate how assets behave not in a single year, but across decades.
Stocks Beat Rocks
Gold is an inert asset. It does not produce earnings, pay dividends, or generate cash flow. Its value relies on the price that someone else is willing to pay in the future. In contrast, stocks represent ownership in businesses that create goods and services, generate profits, and reinvest their capital.
Over the long term, U.S. equities have consistently outperformed gold when adjusted for inflation. This difference is primarily because of compounding. When companies generate profits, they can distribute dividends, reinvest those earnings, or buy back shares. This process allows growth to build upon itself. Gold, by comparison, does not compound internally. It may appreciate in price, but it does not grow through productivity.
This distinction is central to investment management in Austin or anywhere else. Portfolios designed for multi-decade horizons benefit from assets tied to economic output. That does not eliminate volatility, but it aligns long-term outcomes with underlying growth.
The 1980 Blowoff and What Followed
The 1980 peak in gold occurred during a period of extreme inflation and uncertainty. Investors sought perceived safety, and gold prices responded accordingly. What followed is often less discussed. After reaching its peak, gold entered a prolonged period of real underperformance.
Depending on the measurement period, gold experienced a roughly two- to four-decade stretch in which its inflation-adjusted returns were flat or negative before it sustainably exceeded its 1980 purchasing power. During that same broad timeframe, diversified equity markets endured recessions, bear markets, and crises, yet ultimately compounded over the long run.
This pattern illustrates a key point for any fiduciary financial advisor advising retirees: peak performance often carries embedded risk. Assets that surge dramatically can spend extended periods digesting those gains.
Fat Tails and Volatility Clustering
Gold has also experienced extraordinarily long real bear markets. Following its 1980 peak, gold entered a prolonged inflation-adjusted decline that lasted roughly four decades before sustainably exceeding its prior purchasing power. Depending on the starting point used, that period stretched from the early 1980s into the mid-2020s.
Over a similar timeframe, the longest real drawdown for U.S. equities lasted significantly less than gold's decline, totaling just over a decade. Stocks have experienced significant downturns, such as the technology collapse and the global financial crisis. However, their recoveries have historically been quicker when assessed in terms of inflation-adjusted returns.
The practical implications are significant for retirement planning. A 40-year-old investor in 1980 who allocated a substantial portion of their retirement savings solely to gold would have encountered decades of stagnation in real purchasing power. Twenty years later, that investor would have just been close to breaking even after accounting for inflation, and perhaps much worse depending on their withdrawal patterns.
Gold often becomes more appealing during times of anxiety regarding currency stability, fiscal policy, or broader systemic risks. It can provide psychological reassurance in those environments. However, building a retirement strategy around collapse scenarios is very different from building one around compounding economic growth. A portfolio designed primarily for productivity tends to behave differently than one designed primarily for preservation under extreme stress.
Sequence of Return Risk in Retirement
Sequence of return risk refers to the impact that poor returns early in retirement can have on a portfolio. Combining withdrawals with negative or flat real returns can cause lasting damage. Assets that generate income, such as dividend-paying stocks or interest-bearing bonds, provide some offset to withdrawals. Gold does not provide that internal cash flow.
A retiree heavily allocated to gold during a prolonged drawdown could face greater strain than one invested in a diversified mix of productive assets. That does not make gold inherently flawed, but it does limit its effectiveness as a primary retirement funding vehicle.
As a fee-only financial advisor, my responsibility is to evaluate how each asset supports long-term objectives. An asset that does not generate income must be carefully sized within a portfolio designed to fund decades of living expenses.
Inflation Hedge: Partial Truth, Not Panacea
Gold is often described as an inflation hedge. Over very long periods, it has roughly preserved purchasing power. However, the relationship is not precise. There have been inflationary periods when gold underperformed and other periods when gold surged even without extreme inflation.
Stocks provide a different form of inflation response. Businesses have the ability to raise prices, enhance productivity, and increase revenue over time. This adaptability has historically resulted in more consistent long-term real growth. In contrast, bonds fulfill a different purpose by providing income and diversification in specific economic conditions.
For investors looking for stability during uncertain times, gold can act as a modest diversifier. It should not be mistaken for a comprehensive inflation solution.
A Disciplined Allocation Framework
There is a compelling case for including a modest allocation to gold in a diversified portfolio. A small investment in gold can offer diversification benefits and provide psychological comfort during times of market stress. The key factor is maintaining the right proportion and exercising discipline in this allocation.
Excessive concentration in gold can lead to prolonged periods of stagnation and heighten sequence risk for investors. Conversely, underweighting productive assets may weaken the portfolio’s link to economic growth and earnings expansion. It is crucial to adopt a balanced approach, based on evidence rather than emotion, for effective investment management in Austin.
As a CFP® dedicated to helping families build long-term wealth, I focus on allocation frameworks that align with compounding economics. Although gold can serve a supportive role in a portfolio, it is not likely to be the primary driver of sustainable wealth creation.
What This Means for Investors
Gold medals are rare. So too are gold price spikes. Both are memorable, and they carry emotional weight. However, steady participation in productive assets and disciplined portfolio management typically build long-term wealth.
For families planning for retirement, the objective should not be to pursue extremes but to create portfolios that can withstand various market cycles. This involves carefully assessing the role of gold, allocating a modest portion if included, and ensuring that the foundation of the portfolio is anchored in assets that have the potential to compound over time.
If you’re unsure about the role of gold in your investment allocation, it might be beneficial to reassess your strategy with a fiduciary financial advisor. Engaging in a thoughtful discussion with a fee-only CFP® can help ensure that your portfolio aligns with long-term goals rather than being swayed by short-term market trends.
Discipline, diversification, and evidence-based decisions are essential foundations of effective portfolio management. Get in touch if you want to review yours.