For decades, gold and silver have been touted as safe havens amid market turbulence. Yet changing US economic conditions indicate that these precious metals might not deliver the best long-term investment returns anymore. In the following analysis, we detail the reasons for reconsidering heavy allocations to physical gold and silver.
Opportunity Cost
Physical gold and silver don’t produce any income like dividend-paying stocks or interest-bearing bonds do. Right now, the S&P 500’s dividend yield is roughly 1.27. On the other hand, most US corporate bonds and Treasury securities exchange hands with yields between 3 and 4%, and in the long run, not having cash flow results in missed compound growth.
Compared to instruments that generate periodic income, the long-term opportunity can cost a staggering amount.
Ineffective Inflation Hedge
Contrary to the Canadian market gold is considered an inflation hedge, but the latest data from the US market indicates that gold does not hedge inflation. For example, from October 2021 to October 2022, one-year Treasury Inflation-Protected Securities (TIPS) had a real return of over 4%, while gold prices went down by 8% and silver by 25.4%.
This means that in certain inflationary situations gold and silver were not complete immunity of purchasing power.
Effects of Increasing Interest Rates
The tightening cycle implemented by the Federal Reserve has also played a significant role in asset appeal. Interest rates on debt have also increased, with the yield on the 10-year US Treasury note rising from below 2% in 2020 to around 4.50% in early 2025.
Interest rates have climbed, making income-producing investments, like bonds and dividend-paying stocks, more attractive. Alternatively, the gold and silver investments do not yield anything. Thus they are no longer competitive to cash and cash equivalents.
Storage and Insurance Costs
Physical gold and silver have costs that paper gold and silver do not. The costs for secure storage and insurance in the US can vary from 0.5% to 2% of the asset’s value per year. These ongoing expenses gradually reduce gross returns and can lead to much lower net benefits in the long run, particularly relative to digital or ETF-based investments that involve no physical storage.
Liquidity Problem in Case of Market Stress
Generally speaking, gold and silver in a healthy market are fairly liquid, but liquidity quickly evaporates in times of extreme stress. A multitude of empirical research has shown that during periods of financial crisis, liquidity premiums in precious metals can increase by as much as 30%, placing pressure on investors to sell at discounted rates to other investors or defer transactions altogether.
Meanwhile, US-listed ETFs and blue-chip stocks are active with liquidity, so investors can get cash when they want and at what prices they expect.
Trends in oversupply and production
The supply of precious metals has grown considerably in the last few years through mining and recycling. U.S. Domestic gold production has leveled off between 200 and 250 metric tons a year. Global production averages about 3,000 metric tons per year according to the US Geological Survey.
Additionally, mining efficiency and recycling advancements have provided another 5–10% per annum to supply. Over the longer term, this oversupply can weigh on prices, creating a ceiling on how much capital appreciation is possible.
There Are So Many Better Options
The diversification within portfolios nowadays includes a blend of income-generating and growth-oriented assets. However, history shows the S&P 500 has averaged around average annual returns of 10%, while gold has a long-term annual return that is traditionally in the 4–5% range.
Moreover, multi-asset ETFs, cryptographic properties, and fixed-income instruments offer superior risk-return profiles to the flat yield of non-producing precious metals.
Shifting Economic Conditions
In recent years, the US economy has undergone a profound transformation, Some of the growth in sectors like technology and renewable energy is causing companies to report annual growth rates of up to 31% by 2026. Gold and silver have traditionally been assigned value over time as a function of their antiquated rarity and safety from worldwide economic catastrophes.
However, these proven sectors are fluid, innovating, and growing exponentially. For investors seeking long-term capital gains, the upside potential of assets in many of these growth industries dwarfs traditional precious metals.
Regulatory & Tax Complications
The IRS taxes gains on collectibles, such as precious metals, at rates up to 28%, versus only up to 20% for capital gains from stocks. The administrative hassle of monitoring cost bases, managing storage, and satisfying strict reporting requirements injects another level of complexity and cost—elements that can inhibit the effective management of portfolios.
Limited Growth Potential
Gold and silver, however, are static, and unlike equities that receive earnings growth and reinvestment, these two precious metals only offer stability. Their price increases are based more on market psychology than economic fundamentals.
This means that, unlike equities and productive assets, precious metals are not expected to keep pace with a growing economy. The limited growth potential implies that gold and silver typically do poorly on long-term investment horizons compared to assets that drive wealth creation through capital gains.
Market Manipulation and Speculation Vulnerability
Gold and silver markets are very speculative and can easily be manipulated. These markets are smaller compared with broader equity markets. So price movements also may be exaggerated by big speculative positions or coordinated trading action.
This makes for greater volatility and can also lead to mispricing of assets that cannot be reconciled with fundamental pricing. In such conditions, investors struggle to derive an accurate market worth for these assets. This makes them significantly less attractive than other regulated asset classes.
