Did you miss out on Gold?
The headlines are back on. ‘Gold is skyrocketing’, ‘Gold hitting all time high’, ‘Don’t miss out on gold’. I have been in favour of gold this year and have implemented funds with gold exposure in my client’s portfolios. But to see if gold has outperformed the markets, we must look at a longer period. Gold hit a previous all time high in September 2011 of US $1,920.30 an ounce. I remember the headlines talking about a new gold rush. Experts and analysts writing and talking that this is heading straight towards $5,000 or at least $3,000. That stage is called Euphoria and usually the beginning of the unraveling. My rule, if you see it on TV, or your cousin, neighbour or dentist tells you that this is going up for sure…it is most likely too late and you should stay away from it. If you would have listen to the experts back in 2011 and invested for example $100,000 directly in gold, your investment would have been cut in half by 2015 and you would break even, if you had the stomach to stay with it this week. If you would have instead invested the $100,000 into the markets, with a well picked all equity portfolio, you would have doubled your money over the same period. Even a balanced portfolio would have driven your investment to about $170,000. Just like with the markets, timing does play a role with gold and there are some periods where gold has outperformed the markets, 2001-2011 and the last 2 years for example. Overall, however markets have outperformed gold by far. But I don’t think that we have reached the Euphoria phase yet and gold will continue to climb, caused by global uncertainties triggered by Covid19, a weakening US dollar, low-interest rates and stimulus programs. A key factor behind this robust performance is also that the supply growth of gold has changed little over time – increasing by only 1.6 per cent per year over the past 20 years. In contrast, fiat money (currencies) can be printed in unlimited quantities to support monetary policy. Right now, these printing presses are busy and gold will continue to climb.
