Our Perspective on 2025's Investment Returns

In our seventh Collingbourne annual investment review we look at the huge rises in prices of precious metal over the past year and our views on investing in commodities.

News stories of Gold’s value rising are good at capturing attention – a combination of a financially attractive story along with something tangible and visually alluring (well, a lot more than a line of stock anyway).

In previous reviews we’ve covered:

2025 Returns

2025, like the previous two years turned out to be an almost universally positive year for UK (GBP) investors, with real returns across most major asset classes:

The biggest difference to the past couple of years being the UK and Emerging Markets equities significantly outperforming global developed markets for the first time in a long while. We noted in last years’ blog it would be dangerous to assume the recent dominance of US large company shares would go on and on.

* Year to November 2025, as we don’t have December’s inflation data at the time of writing.

Gold Rush … or is Silver Rush a thing?

As good as the above main asset class returns were, these were dwarfed by the price increases on some commodities. The price of gold – the most watched precious metal – increased by about 53% in GBP terms in 2025.

Whenever any asset / investment increases in value like this, we inevitably see increased interest in that asset and questions over whether we should invest in it.

Collingbourne’s model portfolios did used to hold an element of gold and other commodities in them – we took the decision in 2010 to remove commodities from our model portfolios and gradually sold client holdings over the following couple of years. The reasoning being we decided it wasn’t really investing …

What is an investment?

Sorry if this comes across as slightly existential, but bear with me.

We invest in equities as we are buying a proportion of a company. Its value is based on the profits we expect it to make in the future, which we will share in. Similarly, people invest in properties based on the value of the rental income they produce.

Sure, in each case we are hoping for – or even expecting – price rises, but those rises will be predicated on rises in the future profitability / rental income stream from those assets. Fundamentally it is the stream of future revenues that decide the market value of a property or a company (this is also true for bonds).

With commodities this isn’t the case. There is no future revenue stream to provide an income or drive capital appreciation. The only return comes from increases in price. These changes in price aren’t based on any fundamental valuations, purely what people value the commodity at any given point in time. Thus, buying gold isn’t really investing – it’s speculating on future price changes.

Gold has some limited industrial use, but those small volumes don’t drive the price, unlike say copper. Interestingly, the huge price rise in Silver appears to have come from an initial increase from industrial demand, followed by investor speculation.

Store of Value

This isn’t to say that Gold or Silver aren’t valuable – humans have demonstrated they value these metals for thousands of years, across cultures and civilisations.

Their value to people stems from their appearance (use in jewellery) and the fact that they are scarce. People have always known supplies are very limited, there isn’t suddenly going to be a huge amount of gold turn up and make the scarce resource you have worthless.

This scarcity has seen Gold (and to a slightly lesser extent Silver) used as a “store of value” for millennia. Its price will fluctuate (although most people don’t realise by quite how much), but people are safe in the knowledge it will likely always be valuable.

Crypto

I might regret opening this can of worms but … the same rationale as to why commodities aren’t really investments applies to cryptocurrencies (and then some). The fact that blockchain technology itself may be useful is not a reason why cryptocurrencies should be valuable.

Unlike other commodities cryptocurrencies have no industrial use or value. You could consider them a store of value like gold or silver – proponents oft point to the fact that they cannot be debased like currencies – however this comes without the several thousand-year track record of people valuing them (there’s also storage and maintenance risks / costs).

Bitcoin may double or treble or whatever over the next year, no one can predict its wild price swings. But fundamentally, it has no expected value, only the hope someone will pay more for it in the future (greater fool theory). No amount of concerns over fiat currency or conflations with the underlying technology change that. Eventually it will (more than likely) be worthless, even if this takes decades to happen. Personally, I think the comparisons to gold and silver are wide of the mark, the more accurate allegory is that of tulip bulbs in the 17^th century and NFTs; at some point people will realise it has no real value and they will be left holding an expensive dead plant / digital picture of a monkey.

The only way this changes is if people start getting paid in Bitcoin and doing their weekly shop in Bitcoin (and despite the hype, blockchain technology is incredibly cumbersome and costly to implement for mass transactions compared to modern banking systems).

So, should I hold gold as a store of value?

Gold is not well suited as a short-term or traditional “defensive” asset, as its price is very volatile. It wouldn’t be wise to set aside short-term spending plans in gold; you could easily find its value having fallen 40%.

Any holding in gold (or silver) would need to be held as a long-term asset. There is some rationale for holding gold alongside other long-term assets, in that it tends to perform well when traditional risk-based assets (e.g. stock markets) are not.

The problem is that between periods of gold providing price appreciation / downside protection, it provides no expected return. Indeed, gold can go a very long time whilst providing no return at all. The charts below shows Gold prices after reaching a market highs in 1980 and in 2012 (2):

This chart shows the following 25 years from Gold hitting a record high in January 1980. If you bought Gold at this point, you were still down 22% a quarter of a century later (GBP terms, gold price down 35% in USD) having been down almost 40% at the turn of millennium, 20 years after investment.

Gold then had a very strong rally before and particularly during the Great Financial and Sovereign Debt crises, reaching a high in September 2011. It then delivered another 9-and-a-half-year period with no return, having again suffered a maximum fall of about 40%.

Gold has since been on an almost 5-year run of huge price increases since early 2021 (up about 170% since the end of the above chart!) and sits firmly at record highs.

But what are your expectations moving forwards? Will Gold continue its ongoing price rise? Or will it enter another decade plus period of no return? What is that expectation based upon?

Short term stock market movements are similarly unpredictable of course. The main difference however is an economic rationale for their long-term return; based on the future profits of those companies. As a result, stock markets reach record highs very regularly; there’s normally several a year and they don’t tend to produce negative returns over decades.

Conclusions

We took the decision in 2010 to remove gold and other commodities from our portfolios as they aren’t really investments and we still believe in that logic. There is no expected return, only price speculation and volatile prices make them unsuitable as shorter term / lower-risk assets.

As discussed last year in the context of piling into US tech stocks, basing portfolio decisions on recent past performance can be a very dangerous thing to do – both at an asset allocation level and when picking individual investments.

What has just performed well is not a reliable indicator of what is about to perform well. Chopping and changing strategies, moving into recently high returning investments, after its already happened, is not a sensible strategy.

A sensible strategy is holding a diversified portfolio linked to the productive capacity of the globe, based on academic investment theory and decades of market data, which you then stick to with discipline.

(1) Data sourced from Dimensional Fund Advisors, returns stated are Total Returns (including income reinvested) in GBP terms, of various indices representing individual asset classes. Indices are not available for direct investment and take no account of charges or tax. They are presented for comparison purposes only.

(2) Gold Spot prices converted to GBP terms; data sourced from Dimensional Fund Advisors (monthly returns from Feb-80 to Jan-05) and Financial Express Analytics (weekly returns from 14/09/2011 to 08/03/2021).

Disclaimer:

This document should not be considered a recommendation to purchase or sell any particular investment. Care has been taken to ensure the accuracy of content, but no responsibility is accepted for any errors or omissions. We do not predict or guarantee the future performance of any individual security, investment, portfolio or asset class.

Our Perspective on 2025’s Investment Returns