Gold is one of the most polarizing assets. Investors either love it or hate it. That’s because gold has a history of extreme volatility that has left investors either very happy or very angry depending on when they were buying and selling.
With inflation raging higher in the last year, gold has moved back into the spotlight.
Gold is up 10% on the year and back within striking distance of the all-time high from August of 2020. That adds to a string of recent gains.
In the last five years gold is up 50%.
In the last 50 years, gold is up 4,000% – it has doubled 40 times – an average gain of around 80% per year for 50 years. However, as you can see in the 50-year chart below – gold has been all over the map. In that 50-year period gold has gone through extended bull and bear markets. Take a look at the 50-year chart below.
It’s unlikely gold will produce another 4,000% gain in the next 50 years, but either way, things are looking up for gold. Below I have listed what I think are the three best reasons to invest in gold.
3 Best Reasons to Invest in Gold
Gold holds its value in the long run: I’m no gold bug, but the reality is that gold has historically been an amazing place to preserve wealth. For example, while countless paper currencies have collapsed in the last thousand years, gold has retained its valuable status through it all.
Gold cycle moving back to bullish: Gold moves in extreme, decade-long cycles. For example, from 2000 to 2011 gold surged higher by more than 1,000%, a great decade. From 2011 to 2020 gold was basically even, a terrible decade. And now, it looks like gold is breaking out into a new bullish cycle, setting the stage for a potentially great decade.
Weakness in the U.S dollar: The purchasing power of the U.S. dollar has fallen by 99% in the last 100 years. If you’re worried about more weakness in the USD gold should do well under current macro conditions. The chart below shows the decline in the US dollar for the last 100 years. Its pretty stunning.
2 Reason Not to Invest in Gold
Although I do believe gold looks interesting right now, gold is not an investment for the faint of heart.
Gold has a history of extreme volatility: Gold can be extremely volatile in the short run and that can be a big turn off for a lot of investors – particularly for investors looking at gold as a ‘safe haven.’ For example, from 2011 to 2015 the price of gold fell almost 50%. A 50% decline in four years is not a ‘safe haven’ for most investors.
Long periods of darkness: Gold has a history of multi-decade bear markets. Yes you heard that correctly – multi decade. For example, gold hit a new all-time high in 1980 around $875. After that gold fell into a crazy bear market – it would take 28 years for prices to break past that all-time high finally happening in 2008. For the record that’s a 28-year bear market. Do you have the patience to hold for 28 years?
My Thoughts on Gold as an Investment
From everything I have looked at – here is my simple analysis on gold. It can be an awesome investment but you have to buy at the right time. If you buy at the right time you can pick up some solid gains. But if you buy at the wrong time, hello 28-year bear market.
Is this a good time to buy? My guess is yes. At a high level, gold appears to be emerging from a 10-year bear market and shifting into a bull market. This is a pattern we have seen before. I’m not expecting massive gains but I do see a few solid catalysts for the price of gold in the next few years.
3 Strategies to Invest in Gold
Physical gold: This is basically visiting your local gold dealer and buying physical gold. For example, gold coins or even gold jewelry. If you’re a high roller, maybe a few gold bars.
SPDR Gold Trust (GLD): This is the most popular gold fund on Wall Street and it allows customers to invest in the price of gold through an exchange-traded fund (ETF). Pros and cons here but overall a pretty effective method to gain exposure to the price of gold. Shares are up 10% in 2023, matching the price gains in physical gold.
VanEck Gold Miners ETF (GDX): This is another exchange-trade fund (ETF) that invests in a group of the largest gold miners in the world. The fund is popular, it has $23 billion in assets under management. With gold on the rise, this fund is up 16% on the year and recently hit a new 9-month high. If the price of gold rises, I would expect gold mining stocks to do really well.
What Should We Expect Looking Forward?
Keep an eye on gold – it looks interesting right here. I don’t see massive gains on the horizon, but I do see a solid group of catalysts unfolding in the next few years. I also see gold as a way to gain additional diversification in a portfolio with an asset class that has a low correlation to the stock market.
I’ll be back with another update next week – have a great day!
Disclaimer: This is not investment advice. This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
