The precious metal has appreciated by 363.35 per cent over the past 10 years – a figure only beaten by the S&P GSCI Silver Spot, which has delivered 441.68 per cent.
However, silver has been significantly more volatile than gold over the period, which is reflected in its Sharpe ratio.
Risk/return of indices over 10-yrs
| Sharpe ratio | Returns (%) | Volatility (%) | |
| S&P GSCI Gold Spot | 0.7 | 363.35 | 19.08 |
| S&P GSCI Silver Spot | 0.46 | 441.68 | 33.19 |
| S&P GSCI Copper Spot | 0.41 | 317.39 | 28.8 |
| S&P GSCI Brent Crude Spot | 0.34 | 283.52 | 31.16 |
| S&P GSCI Lead Spot | 0.29 | 298.62 | 38.95 |
| S&P GSCI Sugar Spot | 0.29 | 230.4 | 35.14 |
| S&P GSCI Corn Spot | 0.2 | 163.01 | 32.7 |
| S&P GSCI Nickel Spot | 0.12 | 119.49 | 41.24 |
| S&P GSCI Cotton Spot | 0.04 | 73.37 | 32.08 |
| S&P GSCI Natural Gas Spot | -0.04 | -33.4 | 54.05 |
Source: FE Analytics
The Sharpe ratio determines which indices have the best risk-adjusted performance over the set periods. It measures a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the investment's volatility.
Gold comes out on top with a score of 0.7, while silver lags behind on 0.46 due to its annualised volatility of 33.19 per cent. By contrast, gold has a volatility score of just 19.08 per cent over 10 year.
Performance of indices over 10-yrs
Source: FE Analytics
Copper's emergence in the latter part of the last decade sees it break into the top-three with a Sharpe ratio of 0.41 while natural gas – tipped by many as the growth story of the next 10 years – has the lowest score over the period with -0.04.
Gold also comes out on top over five years, ahead of sugar in second and silver in third, and it is well ahead of the rest over a three-year period as well.
As expected, the best risk/return exchange traded commodities (ETCs) of recent years are gold-focused. All five of the products with the highest Sharpe ratio over five years are gold ETFs, with the iShares Gold Trust, UTI Gold Exchange Traded and Goldman Sachs Gold Exchange Traded Scheme all boasting a score of 0.98.
Martin Arnold of ETF Securities says he expects gold to continue its strong run for at least the medium-term, but is less optimistic about natural gas.
"I can definitely see natural gas struggling for the next 10 years as well. The sharp increase in supply, particularly in the US, is not a good thing for investments. The reserves of natural gas are currently 35 per cent above their five-year average, due to the new methods of hydraulic fracking and horizontal drilling."
"It’s of little surprise gold has done so well given the general distrust of policy making, and given all the prevalent problems in the macro environment, I’d expect it to continue to do well for at least the next couple of years."
In the longer term, Arnold expects commodities that are linked to emerging market growth to fare the best.
"Once the macro outlook becomes more sustainable, I think more cyclically focused areas like copper and palladium will once again come into their own," he finished.