Gold vs Treasuries AKA Government Bonds

The table below contrasts properties of the 7-10 year Treasury Bond ETF (IEF) with the SPDR Gold Trust (GLD). These are two ETFs that are highly succesful with billions of assets under management and are laser focused on a specific theme. They pretty much represent their respective asset class which is gold and medium term U.S. treasuries. You might be surprised the real return under a 2% inflation scenario is negative but as of 10/11/2017 the weighted average yield is below 2%, the trailing 12 month yield is below 2%, the distribution yield is below 2% although the 30 day SEC yield is 2.01% that didn’t sway me to enter slightly positive.

The same can be said of European or Japanese bonds only these are a lot worse as compared to U.S. bonds.

I made the table because it illustrates why there isn’t a good reason to own government bonds. They just don’t have any upside left in them anymore. At best you maintain purchasing power as time goes on. That’s not an inspiring best case scenario.

Gold and Bond ETF/ Returns in USD Real return under 2% inflation scenario Real return under hyperinflationary scenario Real return under deflationary scenario Return when fear is going up Return when fear is going down When will someone buy them off you at a substantially higher price
SPDR Gold Trust Neutral Positive Up for debate Positive to extremely positive Negative There are various scenarios: helicopter money, raging inflation, gold rush, panic in the markets, etc
iShares 7-10 year Treasury Bond ETF Slightly negative Negative Positive Positive Negative Never because they would have to accept enormous negative real returns

My approach

I confess I’m not a big investor in gold ETF’s and neither do I store physical at home. I happen to like precious metal royalty companies and very selectively like to buy gold mining stocks.