Gold produces no cash and pays no dividend — and in 2025 it beat the S&P 500

In 2025, gold rose about 44% to a record $4,550 an ounce, setting 56 record highs in a single year — its best annual run since 1980, and a stronger return than the S&P 500. Central banks kept buying it by the hundreds of tonnes. Which is strange, because gold does something no stock or bond does: nothing. It pays no dividend, no coupon, and generates no cash flow at all. So how do you value it, and what exactly was the world buying?

You cannot discount a bar of gold

Stocks and bonds are valued by forecasting their future cash flows and discounting them to today. Gold has no cash flows to forecast. Its worth is not a function of earnings or interest. It is set on the demand side, by what the next buyer will pay to hold it. That makes gold a different kind of asset: a commodity and a store of value, not a claim on a business. The discounted-cash-flow toolkit that prices most of the curriculum simply does not apply.

So what moves the price?

With no cash flows to anchor it, gold's price turns on a few forces, and 2025 delivered all of them at once:

• Inflation expectations and currency debasement. Gold is not a reliable hedge against realized inflation — over short horizons it tracks the CPI poorly. What it responds to is the fear of debasement: when investors lose confidence that paper money will hold its value, they bid up a finite asset no central bank can print.
• Real interest rates. Gold pays nothing, so it competes with bonds that do. When real yields fall, the opportunity cost of holding gold drops and it becomes more attractive.
• Fear. It is the classic safe haven; geopolitical and growth worries send buyers toward it.
• Central-bank demand. Central banks have been accumulating gold to diversify away from the dollar, a structural bid beneath the price.

Why a no-yield asset earns a place

If gold pays no income and you cannot forecast its cash flows, why hold it? For its diversification. Gold's correlation with stocks and bonds is low and often negative, so a small allocation can lower a portfolio's overall risk even though gold on its own is volatile. That is its role among alternative assets: it is ballast, not a source of return.

Valuing the unvaluable

The lesson the exam draws from an asset like gold is that not everything is a discounted cash flow. Some assets are worth what the next buyer will pay, driven by inflation, real rates, fear, and official demand rather than earnings. The analyst's first job is to recognize which kind of asset is in front of them, because the wrong valuation tool produces a confident but useless answer.