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Investing in Gold: 10 Facts You Need to Know; Gold tends to do well in times of trouble, but its long-term record isn't so shiny.
Kiplinger ^ | 02/11/2023 | DAN BURROWS

Posted on 02/12/2023 7:51:37 PM PST by SeekAndFind

Ask any veteran goldbug about investing in gold, and they'll likely caution you that the precious metal will too often break your heart.

True, investing in gold tends to work in times of trouble. For example, gold prices vaulted past $2,000 an ounce in early March 2022 in response to the Russian invasion of Ukraine.

Cut to today, and with equity markets in turmoil and inflation running high, it's understandable if folks are tempted by the prospects of investing in gold. 

Just understand that despite some illustrious returns in the 1970s and the first decade of the 21st century, gold has generated disappointing long-term returns compared to stocks. Even its reputation as an inflation hedge isn't all that it's cracked up to be.

Historically, at least, gold returns have only kept up with inflation over the long haul; the metal hasn't outperformed. Over the short and medium term, gold's record as an inflation hedge is generally pretty poor.

To be sure, gold ETFs and gold miner stocks can be effective tools in the hands of traders and tactical investors. But that means knowing when to get in — and when to get out.

As for investing in gold for the long term? Suffice to say a buy-and-hold approach has too often ended in tears.

Just look at recent events. If any year should have been good for gold, it was 2022. U.S. stocks plunged into a bear market, and bonds got killed too. Investors worried incessantly over the odds of recession or possibility of stagflation. Inflation hit levels not seen in four decades.

And what did gold prices ultimately do? They ended the year almost exactly where they started. 

Since investing in gold is obviously not easy, here are some critical nuggets you must know before betting on the precious metal.

Data, prices and returns are courtesy of Kitco, DQYDJ, the Perth Mint, the World Gold Council, YCharts, the U.S. Mint and Morningstar.

Since 1980, Which Investment Has Generated the Best Returns?

Gold? Nope. Maybe U.S. bonds? Wrong again. Large-cap stocks traded in the U.S. have easily outperformed those asset classes over the past four decades.

From January 1980 through January 2023, the S&P 500, with dividends reinvested, returned an annualized 11.4% before inflation. Adjusted for inflation, the market's annualized total return came to 8.0%. 

As for bonds, the benchmark 10-year Treasury note delivered an annualized total return of 5.6% over the same period. Adjusted for inflation, the 10-year note delivered an annualized total return of 2.4%.

Gold's returns over the same span haven't been quite so lustrous. From January 1980 through January 2023, the yellow metal generated an annualized return of 3.1% before inflation. After adjusting for inflation, gold produced an annualized return of -0.01%. 

Since 1990, Which Investment Performed Best?

Once again, U.S. stocks beat both U.S. bonds and gold.

From January 1990 through January 2023, the S&P 500 generated an annualized total return (price appreciation plus dividends) of 7.7% before inflation. After inflation, the return came to 7.1%. 

The 10-year Treasury note delivered an annualized return of 4.2% over the same span. Adjusted for inflation, 10-year notes delivered an annualized return of 1.5%.

Gold, meanwhile, generated an annualized return of 4.9% before inflation. On an inflation-adjusted basis, gold's annualized return comes to 2.3%. The yellow metal did much better than bonds, but once again trailed stocks by a wide margin.

Note that the price of gold actually dropped about 27% between 1989 and 1999. Gold often loses value in prosperous times, as the 1990s generally were.

What About Since 2000?

The 21st century was gold's time to shine. From January 2000 through January 2021, gold generated an annualized return of 9.6%. Adjusted for inflation, that comes to 7.3% annualized.

Stocks came in second over the same period, with a total return of 6.5% annualized, or 4.0% after factoring in inflation. Don't forget that equities fell victim to the bursting of two bubbles – the tech bubble early in the century and the real estate and credit bubbles starting around 2007.

Benchmark Treasury notes came in last during this period, with a 2.7% annualized return, or 0.2% in inflation-adjusted terms.

But Gold Can Indeed Be a Good Hedge in a Crisis

Gold can soar in value during hard times, when investors are fearful and uncertain and seek safety. Just look at the diverging paths that stocks and gold took in 2020 amid the outbreak of COVID-19.

When the pandemic-fueled selloff in stocks finally bottomed out on March 23, the S&P 500 was sitting on a year-to-date loss of more than 30%. Gold prices, however, held firm. By March 23, they were up about 1% for the year-to-date.

And then the real fun began. Gold went on a tear over the next four-plus months, rallying 36% through Aug. 6 when it hit an all-time high of $2,067.20 an ounce.

As noted above, the 21st century has given gold several opportunities to shine. The turmoil that followed the Sept. 11, 2001, terrorist attacks and continuing through the 2008-09 economic meltdown was bullish for gold investors.

It's not unusual to see gold’s price rise with bad news (such as the global pandemic or a sovereign debt crisis) and drop with good news (such as better-than-expected economic growth).

Don't Believe the Hype: Gold Is Not a Good Store of Value

A longtime argument in favor of investing in gold is that it is a good store of value – that is, its inflation-adjusted price remains relatively stable over long periods.

Sign up for Kiplinger's FREE Closing Bell e-letter: Our daily look at the stock market's moves, and what moves investors should make.

A store of value implies a steady price, and as we have seen, gold prices are anything but steady. Although gold's correlation to stocks is complicated, suffice to say the precious metal can be volatile. In 2012, for example, the price rose almost 6%. In 2013, it tumbled 28%. In 2017? Up 12.6%. But down 1.2% in 2018.

The same goes for longer time frames as well. Take the past decade, for example, and cut it in half. During the first five years ended April 15, 2016, gold prices fell about 16.5%. But since then? Gold is up more than 40% over the past five years.

Gold Isn't the Most Precious of Precious Metals

Gold is the most popular precious metal for investors, but it's not the most expensive. That title actually belongs to rhodium, which currently fetches $12,000 an ounce.

Indeed, of the major precious metals, gold comes in fourth by price per ounce, behind rhodium, iridium and palladium, but ahead of platinum and silver.



TOPICS: Business/Economy; Society
KEYWORDS: gold; goldetf; investment; trackrecord
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1 posted on 02/12/2023 7:51:37 PM PST by SeekAndFind
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To: SeekAndFind

All precious metals are for stability. People need to realize that.


2 posted on 02/12/2023 7:53:27 PM PST by vpintheak (Live free, or die!)
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To: SeekAndFind

Commodities and metals to hold your wealth during tough times and stock market to grow your money during the good times.


3 posted on 02/12/2023 7:53:59 PM PST by Jonty30 (THE URGE TO SAVE THE WORLD IS ALMOST ALWAYS AN URGE TO RULE IT)
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To: SeekAndFind

I once tracked gold since 1913 just to see how much money I might have made if I had the ability to sell at high points and buy at low points from a single ounce of gold.

I ended up with about $190,000, so it’s not a bad way to make money if you know what you are doing.


4 posted on 02/12/2023 7:58:20 PM PST by Jonty30 (THE URGE TO SAVE THE WORLD IS ALMOST ALWAYS AN URGE TO RULE IT)
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To: vpintheak

I’m very naive when it comes to gold and other precious metals. My question is, if times are bad (which is a very broad word), what will you then do with the gold? I guess the first question would be, what is defined as a bad time?


5 posted on 02/12/2023 7:59:19 PM PST by GMThrust
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To: Jonty30

“Commodities and metals to hold your wealth during tough times and stock market to grow your money during the good times.”

* Short stocks in bad times
* Long stocks in good times

Do that and you never need to worry about money. The hard part is knowing if the current moment is bad or good.


6 posted on 02/12/2023 8:00:45 PM PST by Renfrew (Muscovia delenda est)
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To: SeekAndFind

https://cdn.mises.org/the_vampire_economy_20201022.pdf

Read this for an understanding of our current economy.


7 posted on 02/12/2023 8:03:16 PM PST by PeterPrinciple (Thinking Caps are no longer being issued but there must be a warehouse full of them somewhere.)
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To: SeekAndFind

I assume this is biased for US Dollar returns, for Americans.

I wonder how it compares if one is a citizen of Germany, or Japan? Or Brazil?


8 posted on 02/12/2023 8:09:59 PM PST by PGR88 (, )
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To: PeterPrinciple

“Read this for an understanding of our current economy”

Good book. It’s by a Marxist, but it sometimes take one type of totalitarian to explain another.


9 posted on 02/12/2023 8:10:28 PM PST by Renfrew (Muscovia delenda est)
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To: Jonty30

“I once tracked gold since 1913 just to see how much money I might have made if I had the ability to sell at high points and buy at low points from a single ounce of gold.”

IF


10 posted on 02/12/2023 8:12:13 PM PST by TexasGator
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To: SeekAndFind

Damm it.

I went to a lot of trouble and spent lots of money to get the largest gold coin.

Wtf.

Who do these Perthians think they are making a bigger one? I bet they all have a small penis

https://www.dw.com/en/berlin-gold-coin-heist-3-sentenced-to-jail/a-52441680


11 posted on 02/12/2023 8:16:11 PM PST by algore
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To: SeekAndFind

If it all falls apart you will do better with a supply of 9x19 Luger or .357 Magnum than a sack of gold.

You cannot eat gold, though I guess you could cast bullets from it.


12 posted on 02/12/2023 8:16:21 PM PST by Fai Mao (Stop feeding the beast, and steal its food!)
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To: Renfrew

“* Short stocks in bad times
* Long stocks in good times”

History shows that the best time to buy stocks is when the times look the worst.

Personally, I just own good stocks for the long-term.


13 posted on 02/12/2023 8:23:06 PM PST by TexasGator
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To: Fai Mao
"you cannot eat gold'

everyone says that, and they may be right?

I always drink mine


14 posted on 02/12/2023 8:25:01 PM PST by algore
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To: SeekAndFind

This guy appears to be an idiot. Just cut out the middleman. In CAlifornia since 1970’s if you know where to look, you can make $3000- $10,000 every weekend just scooping gold nuggets out of the river. Bring a couple guys, a coup l guns and a couple big dogs,etc. He never heard of the 1849 gold rush. It never ended. Been there still do that. He appears got be an ignoramus. Don’t invest in gold. go pick it out of the river.


15 posted on 02/12/2023 8:29:00 PM PST by bunkerhill7 (nyc is not there. )
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To: GMThrust

If there is inflation, paper money loses its value. When paper money lost a lot of value, the value of gold increased, that is, you can buy more things with it.

In a total collapse of paper money, people use gold and silver as money.


16 posted on 02/12/2023 8:29:21 PM PST by TTFX
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To: SeekAndFind

When it get down to 2 people left on earth and all you have is one can of Chef Boyardee ravioli to eat... What do you want.... The gold, or the ravioli?


17 posted on 02/12/2023 8:29:28 PM PST by jerod (Nazi's were essentially Socialist in Hugo Boss uniforms... Get over it!)
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To: Fai Mao
"You cannot eat gold, " You can but the nutritional value is pretty low.


18 posted on 02/12/2023 8:30:06 PM PST by TexasGator
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To: bunkerhill7

RE: In CAlifornia since 1970’s if you know where to look, you can make $3000- $10,000 every weekend just scooping gold nuggets out of the river.

You make it sound so easy.


19 posted on 02/12/2023 8:31:46 PM PST by SeekAndFind
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To: TTFX

RE: If there is inflation, paper money loses its value. When paper money lost a lot of value, the value of gold increased,

OK, riddle me this — we all know that 2022 was the year of HIGH inflation. But look at the chart of the price of Gold vs USD:

https://ycharts.com/indicators/gold_price_in_us_dollar

It peaked at $1922/ounce on March 2022, then DROPPED to $1628 on November 2022 and climbed back up again to where it is now at $1875. Jut a little higher than it was on January 2022.


20 posted on 02/12/2023 8:36:14 PM PST by SeekAndFind
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