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If there is one thing people LOVE to write about when the market goes down is how GOLD is great. Once again, I remember how many investors rushed into gold investments back in the financial crisis. They felt great for a while… until the end of 2012 where the ounce of gold dropped at the bottom of the lake.
If there is one thing I dislike about gold is it’s not a value producing asset. If you buy an ounce of gold today and you leave it on your desk for the next 20 years, there only thing that you will accumulate during that period is dust on your bullion. Throughout history, gold has been a protector of value, but hasn’t created much. An ounce of gold has held an individual’s buying power through centuries, read millennial. Funny enough, you can buy about the same number of things today than you could have with the same ounce of gold back in Roman Ancient times.
I think gold gained lots of its magical power during the famous stagflation period in the 1970’s. During that decade, the stock market produced a negative return (net of inflation) while the gold priced surged dramatically. If you think we are about to get hit by Stagflation the great, gold could be of some use. However, when you look at the long term perspective, you will realize three things about gold:
#1 It’s not always recession-proof (e.g. it’s not always negatively correlated to the market).
#2 It doesn’t always generate value (26 years with negative return)
#3 It’s highly volatile (more than the market!)
12 Comments
thanks for explaining about gold. I wasn’t particularly tempted but good to know about it. I have benefited from your dividend growth strategy, and that gives me confidence going forward.
Totally agree. Last time touch 2000 was during or at the end of the financial crisis. Anyway , wait 10 years for the next pullback??. Worst than T bills…….
Hello Mike,
Long time no see, glad to see and hear you again !
I guess every time gold is going up, it raises questions about investing in it but looking back at numbers over years cools you down.
Thanks for the reminder and see you soon.
I think we can find value in royalty companies and producers though. I'm long Kirkland Lake. Also wish I had a piece of Franco Nevada. FNV CAGR of 21.67% over the last decade.
Love your videos. And completely share your view of gold. Definitely not for me. Pure co-incidence, but my daughter is just sticking her toe in the investment world, and this week asked me about gold. I sent her your video. Thanks.
True, gold doesn't produce cash flow or dividends, but Investing in Gold ETFs is a hedge against panic. Investing in Gold (physical) is a protection against inflation. They each have a place, just not the same place..
Gold is protection against governments response to a crash. Lowering interest rates creates negative real rates. Negative real rates causes a rise in gold prices.( In declining dollars). Watch the gold miners, then silver miners. Then explorers. Might be a long term bull market.
Mike, I have to respectfully disagree with you this time. A 100% focus on dividend growth investing is fantastic when you have a very long investment horizon, but precious metals can play a role in a diversified portfolio to reduce risk as this asset class is negatively correlated with stocks in times of financial stress. In particular, precious metals are an excellent hedge against currency debasement, which all countries are doing at the present time. Gold companies like ABX and NGT have done very well in 2020 for this reason. That being said, gold has had a huge run up since November 2015 and I will be looking to reduce (but not eliminate) my precious metals exposure very shortly. My hunch is that currency debasement will continue over the next few years until the gold standard is brought back.
Love dividends!!!
In order to keep the comment short,et me ask just one question: If Gold is such a bad investment, why are Central Banks around the world buying it as if it's going out of style? Something doesn't add up!
If you bought gold at the very top, when people were scavenging their jewelry boxes for gold. When silverware was being sold to good buying shops, you bought an insurance against continued hyperinflation.
It was halted with price controls and huge slowdown of the economy.
It was not about making money as much as buying an insurance that if market kept in crashing, prices kept on falling, you would have a valuable asset you could sell.
That was a whole lot more than 2700 dollars worth. A house in USA coupd be purchased for 50,000. Salary, annual was 4,000.
Equivalents today will be 20,000 gold. And if economy fails and usa loses reserve status and major war starts, it would be worth it at current dollar purchasing power.
What about Bitcoin ? R u buying it