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.
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%.
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.
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.
The price of gold doesn't track inflation, as a general rule. Between 1987 and 2001, as inflation fluctuated around 3% a year, the price of gold dropped.
But it is true that during periods of extraordinarily high inflation, gold’s price may soar.
That’s what happened from the mid-1970s through the early '80s, when inflation crept from 4.8% in 1976 to 13.3% in 1979 and 12.4% in 1980, before beginning a long descent. The price of gold leapt from less than $150 an ounce to more than $800 (and then collapsed to $400 by 1981).
The same can't be said of 2022, however, even though inflation spiked around the globe. Heck, in the U.S., inflation hit levels not seen in four decades.
Gold prices climbed about 13% for the year-to-date at one point in the first few months of 2022, but they were also down as much as 10% YTD by November.
By year's end, gold prices were essentially unchanged.
Want a guaranteed inflation hedge? Try Treasury Inflation-Protected Securities (TIPS).
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).
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.
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 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.
As attractive as coins and bullion may be, funds are the easiest way for retail investors to get exposure to gold.
No wonder: It's much easier to get gold exposure by holding a gold fund electronically in a brokerage account rather than receiving, storing and insuring the physical metal.
The SPDR Gold Shares (GLD (opens in new tab)), the world’s largest gold-backed exchange-traded fund, has about $53.5 billion in assets. The ETF tracks the price of gold bullion. If you choose to invest this way, Kiplinger prefers the lower-cost iShares Gold Trust (IAU (opens in new tab)), which has annual expenses of 0.25%, compared with 0.40% for GLD.
You also can invest in numerous mutual funds and ETFs that invest in the stocks of gold-mining companies.
Plus, silver has more industrial uses than gold, making the former’s price more sensitive to the ups and downs of the economy. These two factors combine to make silver’s price jumpier than gold’s.
If you want a good night's sleep, go with gold investing, not silver.
The 2012 "Australian Kangaroo One Tonne Gold Coin" contains one metric tonne of 99.99% pure gold, and is approximately 80 centimeters in diameter by 12 centimeters thick.
The massive coin has a face value of $1 million Australian dollars but is estimated to be worth more than $50 million AUD.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
“If there is inflation, paper money loses its value.”
When there is inflation interest rates increase making it more expensive to hold gold so it is sold causing the price to go down.
Meanwhile, money is the bank is drawing interest.
Ping to the Gold & Silver list!
pm me to be added
—€ If it all falls apart you will do better with a supply of 9x19 Luger or .357 Magnum than a sack of gold.
Don’t disagree except to encourage owning both
A few thoughts I have which appear to be ignored in this piece.
First, gold or silver are best held as a hedge against a collapsed fiat currency. I mean when the sh1t hits the fan.
Second, gold and silver are highly manipulated by the paper Market. I suspect that without periodic injections of massive amounts of paper gold and silver we would see very different situation right now. I also believe that governments have their dirty little hands in it because it would be disastrous for fiat currencies if gold and silver actually had true price discovery.
Another thought, the article keeps referring to how things have done in relation to inflation. And yet the inflation numbers are completely bogus along with the BS GDP figures.
RE: And yet the inflation numbers are completely bogus along with the BS GDP figures.
So, do you think they are HIGHER or LOWER than the reported figures?
That’s a tough thing for sure! Bad for some might not be bad for others. Essentially, physical gold and other metals will remain generally stable when markets go up and down. They have real value when things like fiat currency fails. You’re not going to get rich investing in gold, but you’ll have stability.
The issue is not that gold is good, but rather that the dollar is trash (and getting trashier by the day).
and that was a $20 coin at one time. In both cases, that 1 ounce of gold would get you a really nice suit. A $20 fed reserve note, not so much.
“Gold Is Not a Good Store of Value”
this guy is clueless......
in 1970, 100 oz of gold bought a $3500 car
1000 oz bought a $35,000 house
today 100 oz (@$1850) buys a few nice cars - $3500 couldn’t get you a decent used car....
today 1,000 oz buys 2 pretty nice houses.... $35,000 might get you a single-wide.....
tell me again how gold is not a store of value...
Oberlin college and Columbia university.
👌🏾
I believe everyone should own some physical gold and silver. Enough for an emergency. Also, ammo will function as a form of currency if times get really hard. All part of “hoping for the best, planning for the worst”.
I don’t know much about precious metals, but I do know that the guy from Birch Gold, Phillip Patrick, who advertises on RAV, is annoying. Watching War Room, I give my mute button a workout — Phillip Patrick, Mike Lindell, and Crom with his Soltea.
If you buy a bar of gold and bury it for future generations, in 100 years it will still be a bar of gold. It will increase in value only to account for inflation. If you invest in an appropriate portfolio of businesses, your progeny will usually find it to be worth much more.
“if I had the ability to sell at high points and buy at low points from a single ounce of gold.”
and if i had the ability to sell at high points and buy at low points any single security, i’d be a gazillionaire ...
This is where I run into the situation where I feel like a pig looking at a wristwatch. If that fiat currency fails, then wouldn’t your gold be worth less because of that failing currency? If that currency fails, then how would you sell that gold? Or would you?
“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?”
I’d want a can opener! ;)
*GOLDBUG BUMP*
I have always been reluctant to make a meaningful investment in gold for the following reasons:
1. I believe more gold has been sold than exists. Has anyone done a substantial audit of these privately owned gold vaults? If so, are auditors qualified to attest that the product audited is real gold?
2. Counterfeiting has reached such a high level of sophistication that it is almost impossible to determine fakes. Some years back there was an issue with fake gold bars being produced in China that fooled investors.
3. In times of need it is not readily divisible.
4. The market is controlled with market makers collecting fees for both the purchase and sale.
5. You must be able to safely store and protect your investment.
6. Gold, as all items, is subject to the law of supply, demand and need.
I do not feel gold is a good investment for anyone who needs an immediate return on their money (dividends) or will need to liquidate in a relatively short period of time. For most people I would suggest brass, lead, land and seeds.
Agree. All the constant gold hype commercials are annoying
—> Meanwhile, money is the bank is drawing interest.
Never even keeps up with inflation.
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