How Much Could You Make in 20 Years Investing $200 in Gold?

Understanding Gold as an Investment

For many centuries, gold has been a popular investment because it’s a store of value and helps protect against rising prices. Many investors put part of their portfolios in gold, seeing it as a way to diversify and safeguard their wealth during periods of economic uncertainty. But just how much could you make investing in gold over the long term?

Let’s say you had an extra $200 to invest. While returns vary based on market conditions and growth rates, a $200 investment in gold in 2000, for example, would have been worth over $800 by 2020 and nearly $1,900 by 2024.

Of course, like any investment, putting your money into gold involves risks. Its price can be volatile, and it doesn’t provide any interest or dividends—you don’t make money just by holding onto it. Owning physical gold also comes with security and storage needs. Still, gold has hit records recently, and with future uncertainty about the economy and geopolitics, it may continue even higher. Read on to learn more about how to invest in gold and what that entails.

Gold’s Historical Performance

Over the past 50 years, gold prices have changed significantly, influenced by many economic and political events. In 1972, when the U.S. dollar became a free-floating fiat currency, gold traded under $100 per ounce (about $479 when adjusted for inflation). Over the next decade, gold embarked on a historic stretch of ever-rising prices, reaching a then-record high of around $840 in 1980 (just over $3,000 inflation-adjusted) amid double-digit inflation in the U.S. and political tensions like the Soviet invasion of Afghanistan and oil embargoes.

The chart below provides the changes in the price of gold, adjusted to 2024 prices:

After the record highs in 1980, gold prices retreated in the 1980s and 1990s as inflation cooled and the stock market boomed. The precious metal traded between $300 and $500 per ounce for nearly 20 years before sinking to near-term lows by 2000. However, gold regained its luster in the 2000s, almost doubling from $500 in 2005 ($825 in today’s dollars) to over $1,000 by 2008 ($1,495 in today’s dollars).

The 2008 financial crisis was a significant turning point for gold prices. As the U.S. housing bubble burst and the stock market crashed, investors bought gold as a safe haven asset. Its price surged to an all-time high near $1,600 in 2011 ($2,715 in today’s dollars) as the U.S. Federal Reserve launched an unprecedented monetary stimulus to support the economy.

Gold’s rally was also fueled by the European debt crisis and the credit agency Standard & Poor’s first-ever downgrade of the U.S. credit rating in the early 2010s.

After peaking in 2011, gold dropped in value over several years as stocks bounced back and the U.S. dollar strengthened. Prices bottomed out around $1,100 in late 2015 ($1,480 in today’s dollars) before heading back up. By 2020, gold had returned to above $1,800, boosted by the pandemic, record-low interest rates, and massive fiscal and monetary stimulus worldwide.

In 2024, gold broke above $2,000 per ounce and hit record highs (nominal, meaning not adjusted for inflation), heading north of $2,600 in September 2024. Below are the nominal price shifts in gold since 1970:

Potential Returns on a $200 Investment in Gold

What returns could a $200 investment in gold have achieved over the past 20 years? Let’s analyze the historical data and explore two different growth scenarios.

• If you had invested $200 in gold in September 2004 when the price was around $400 per ounce, your investment would have bought you half an ounce of gold. By September 2024, with gold trading at record highs above $2,600 per ounce, that half ounce would be worth about $1,300. Over those 20 years, your $200 investment would have grown to $1,300, a 550% return or 10.6% annual growth rate.
• However, if you had instead invested in September 2011 near gold’s previous peak of around $1,900, your $200 would have only bought about 0.11 ounces of gold. By September 2024, at $2,600 per ounce, that investment would be worth about $286, a 43% total return or 2.8% annualized over 13 years. This highlights the importance of entry timing and the variability of returns.

For comparison, we’ve provided the shifts in the price of gold since 2000 and compared them with changes in the value of the S&P 500 index, which tracks 500 of the largest and most stable firms publicly traded in the U.S. and is used as a barometer for the stock market as a whole.

Compounding and Growth Rates

Compound growth can significantly impact investment returns over long periods. Here’s how different compounded annual growth rates (CAGRs) would affect a $200 gold investment over 20 years, ranging from the most conservative estimates that would merely keep up with inflation (say, 3%) to aggressive growth rates that reflect a very bullish long-term outlook (say 12%):

• At a 3% CAGR, $200 would grow to $362
• At a 5% CAGR, $200 would grow to $530
• At a 7% CAGR, $200 would grow to $773
• At a 10% CAGR, $200 would grow to $1,345
• At a 12% CAGR: $200 would grow to $1,904

Of course, gold’s actual growth rate is unlikely to be smooth or predictable. Gold prices often shift significantly from year to year. These scenarios are thus hypothetical and not predictive of actual returns. They simply illustrate how different growth rate assumptions can impact investment outcomes. However, they illustrate the power of compounding over long time horizons. Investors should consider their own views and risk tolerance when evaluating the potential returns of gold over long periods.

Factors Influencing Gold Prices

Gold prices are shaped by a range of economic, political, and market forces that interact. Understanding these price drivers can help you anticipate and navigate the twists and turns of the gold market.

Of course, no one has a crystal ball, and unexpected events can always shake up even the best-calculated forecasts. The key is to be attentive to gold’s ever-changing fundamentals while also maintaining a long-term perspective that aligns with your investment goals.

Supply and Demand

At the most fundamental level, gold prices are a function of supply and demand. While gold mining adds to supply each year, gold’s overall supply grows very slowly since most of the metal ever mined remains in existence as a store of value.

On the demand side, gold is sought for both industrial uses and investment purposes. Jewelry fabrication and electronics manufacturing create a base level of demand, while investment demand can fluctuate more dramatically based on economic conditions and market sentiment. When gold demand outpaces supply, prices tend to rise. But for many, its an evergreen investment—it’s consistently popular with retail investors, and many years it’s more popular than stocks for investments purposes, as the chart below shows.

Market Conditions

Broader financial market conditions can significantly impact the gold market. During periods of strong economic growth and rising corporate profits, gold may not perform as well as assets like stocks. Conversely, during recessions or bear markets, gold tends to do better because many people fleeing the stock market use gold as a safe haven to store some of their capital.

Momentum and Sentiment

Like many other financial assets, gold is influenced by momentum and investor sentiment. During bull markets in gold, when there are rising prices, this increase in value itself will attract more buyers into the market, fueling further gains. The opposite cycle can occur in bear markets, with everyone hoping not to be the last to bail as the price of gold tumbles.

Professional investors and speculators can build on these momentum swings by trading large quantities of gold futures or ETFs. Media coverage, analyst forecasts, and technical chart patterns can also shape short-term gold market sentiment.

Political Events

Because of its long history as a universally recognized store of value and safe haven asset, gold is particularly sensitive to political instability. Wars, terrorist attacks, natural disasters, and other shocks can dramatically boost demand for gold and its perceived safety. For example, gold prices surged to then-record highs in 1980 following the Soviet invasion of Afghanistan. More recently, tensions in the Middle East have helped fuel a gold rally.

In addition to these acute events, slow-burning global trends like the rise of China and the supposed decline of U.S. hegemony may also shape gold’s outlook over longer periods.

Currency Fluctuations

The U.S. dollar’s relative value heavily influences gold prices in foreign exchange (forex) markets. A stronger dollar makes gold more expensive for holders of other currencies, potentially lowering international demand. Conversely, a weaker dollar can boost gold’s appeal as an alternative store of value.

Periods of dollar weakness, like the 1970s or the mid-2000s, have historically coincided with strong gold markets. Beyond the dollar, gold can also be affected by changes in the value of other major currencies like the euro, the Japanese yen, and the British pound.

Inflation and Real Interest Rates

U.S. real interest rates, or nominal rates adjusted for inflation, are arguably the most critical driver of gold prices. Because gold offers no yield, it’s typically more attractive when real interest rates are low or negative (i.e., when inflation is high). This means the opportunity cost of holding gold over other yield-bearing assets is lower.

Meanwhile, high real interest rates make gold relatively less attractive. U.S. real interest rates peaked in the early 1980s amid then-U.S. Federal Reserve Chair Paul Volcker‘s inflation fight, ushering in a 20-year bear market for gold. Real interest rates plunged after the 2008 financial crisis, fueling gold’s rally to record highs above $1,900. A chart of these rates since 1970 is below.

The Fed and Monetary Policy

The Federal Reserve’s monetary policy decisions often have an outsized effect on the gold market. By setting short-term interest rates and controlling the money supply, the Fed heavily influences real interest rates and the dollar’s value, two critical variables for gold prices.

Quantitative easing and other expansionary monetary policies are generally bullish for gold, as they tend to depress real interest rates and the dollar. Conversely, rate hikes and quantitative tightening can create headwinds for gold. Gold sold off sharply in 2013 during the “Taper Tantrum” following the Fed’s suggestion it would wind down asset purchases. Similarly, gold came under pressure in 2022 as the Fed embarked on its fastest rate hike cycle since the 1980s to combat soaring inflation.

Other Factors

• Central bank demand: Foreign central banks hold gold as part of their reserves, and their buying or selling can move the market. For example, the People’s Bank of China has been steadily accumulating gold since 2019.
• ETF inflows/outflows: Flows in and out of gold-backed ETFs can certainly affect prices. ETFs like the SPDR Gold Trust (GLD) are very popular investment vehicles.
• Mining technology: While a slow-moving factor, changes in gold mining output at the margins can influence the balance of supply and demand over time.
• Crypto competition: The rise of cryptocurrencies like bitcoin is an emerging factor in the gold market. Some have argued that crypto could divert demand away from gold among younger investors seeking an alternative store of value. However, the rise in the value of bitcoin has not affected the similar rise between 2023 to 2024 in the price of gold.

Comparing Gold to Other Investments

Over the past decades, gold and stocks have seen alternating periods of outperformance. In the 1970s, gold soared while stocks slumped amid high inflation and economic stagnation. The 1980s and 1990s saw stocks take the lead as gold languished. Gold shone again in the 2000s as the dot-com bubble burst, and later, the financial crisis unfolded. Stocks ultimately recovered and pushed upward toward new highs in the 2010s. During the 2020s, both stocks and gold have seen new all-time highs.

From 2003 through 2023, gold returned about 8.9% annually, slightly outperforming the S&P 500’s 8.4% annual return (excluding dividends). However, the S&P 500 averaged over 10% annually, including dividends. Gold’s returns were less impressive over a longer time horizon. From 1971 through 2023, gold returned under 8% compared with the 10.7% total return for the S&P 500.

Of course, past performance doesn’t guarantee future results, and investors are wise to maintain a well-diversified portfolio that includes several asset classes. The best asset allocation varies based on an individual’s financial goals, risk tolerance, and time horizon. Thus, Investors should consider gold a potential component of a diversified portfolio, not a stand-alone investment. And, as with any investment, it’s prudent to consult with a financial advisor to determine whether and how gold fits into your broader financial plan.