The S&P500 index of leading American shares grew faster than the price of gold for four years until 2025. That was a good year for US shares but an extraordinary one for the gold price which gained more than 60%. The reviews of 2025 include a list of the top performing funds, and they are almost exclusively Gold or Precious Metal funds.
Maybe it is time to look again at why Gold performs like this.
As humans we used to trade goods or services with each other. The problem with this is that you end up owing someone a chicken and it gets complicated quickly. As far back as 30,000 years ago we started to mark debts on sticks, but we were able to trade more widely when we started to use tokens to denote value. The cowrie shell was an early version which had the benefit of being pretty and portable.
Eventually we moved to weighted tokens, the earliest being the shekel in 2,150 BC. Gold coins were first used in Lydia (modern day Turkey) from 550 BC under King Croesus, leading to the phrase rich as Croesus. Gold was probably chosen for religious reasons (it was thought that it was shards of the sun fallen to earth) and more practically because it was easy to work with. What it did was make regions naturally rich in gold such as Lydia wealthy very quickly. At one point the Aztecs had so much gold that they would be the richest country in the world by modern standards. Unfortunately, in the case of the Aztecs (and many other countries, some to this day) having gold meant getting it violently taken away.
There is plenty of historical evidence for the existence of King Midas with references from 3,000 years ago to 2,500 years ago. The myth of King Midas though is likely, in part, to originate as an explanation of the gold that can be found to this day in the river Pactolus in Turkey. This was the river where the god of wine and mirth Dionysus allowed him to wash away the curse of gold.
King Midas was offered one wish by the gods for saving Dionysus’ favourite, the satyr Selenus. The wish he chooses is for everything he touches to turn to gold (his coffers were running a little low due to neglecting to collect the tax he was due). As with every story involving a wish, this turns into disaster as Midas realises that although he is now richer than any other man on the planet, he can’t eat or drink. His case turns to tragedy as he holds his daughter Zoe’s outstretched hand and turns her to solid gold too.
The story is intended as a lesson about many things, about the value of nature, of family, about being foreign born, repeated invasions over wealth, having money but no taste and how not to run a kingdom. Most of all, of course, it is about how gold is useless when it can’t buy you the things most important in life.
The other issue with gold is how to work out its worth. As we have said before, you can work out the value of most assets with reference to its income with shares it is your share of the company’s profits, with cash/bonds it is your share of the interest paid on the money lent and with property/land it is your share of the rent due. Gold, crypto and commodities, though, have no income and so establishing ‘fair value’ becomes impossible.
Parmesan has been used for financial operations since the Middle Ages. In Italy, some banks accepted as collateral for loans. Credito Emiliano Bank in the Emilia, Romania region holds about 430,000 wheels of Parmesan today, reportedly worth almost €200 million. The master cheese tester rotates the wheels every few days and inspects them by tapping each one with a small metal hammer.
At least with Italian cheese or wine investments, though you can consume them. Gold on the other hand has no value if there isn’t someone else willing to exchange something useful for it.
So, what happened to Gold in 2025?
Frankly, who knows. It is possible that given the global instability traders bought more as a store of value in times of turmoil, but it is hardly the first year when the news looked dire. Maybe the world’s largest economy trying to kill global trade and the fundamental tenants of capitalism with it, started people panic buying. As the price was forced up, maybe more people bought it due to price momentum.
The only thing we know is that markets will find a level and if there is no fundamental underpin to the price, that could be a lot lower than the current price.
We continue to avoid hard-to-price investments from clients’ portfolios from our offices in Hook, Hampshire and throughout the UK.
For a fun and fascinating modern unpacking of the King Midas story listen to Alex Andreou’s Podyssey Episode 3 on YouTube here, Spotify here or search for it by name in your podcast software of choice.