Patricia T. from Fairfax, VA asks: Hello Mitch, my question today is about gold. I’ve seen reports about gold performing well especially during a crisis, or when inflation may be coming. Seems to me like it’s checking all the boxes! What are your thoughts on gold as an investment?
Mitch’s Response:
Thanks for writing, Patricia. First, a little bit of background for other readers. Gold prices have indeed climbed to a new closing record for the first time in almost ten years, extending a summer rally arguably fueled by somewhat nervous investors. The precious metal is up over 20% for the year, attracting the attention of investors across the spectrum.1
The enthusiasm for gold seems to be driven by investors building portfolio hedges in light of a gloomy global economic growth outlook, depressed interest rates, and rising tensions between the U.S. and China. In terms of your comment about ‘checking all the boxes,’ the above list of concerns is certainly all in play today. Many investors are also flocking to gold because they think inflation is near, or that the U.S. dollar is doomed. Neither outcome seems likely to me in the near to medium-term.
Personally, I have never been a fan of gold as an investment. When gold became available to U.S. investors to buy and trade as an investment commodity, it has delivered a nearly +900% return.2 If that sounds like a solid return, think again: stocks and even U.S. Treasuries vastly outperformed gold over that time period.
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Even just considering the last ten years, stocks as measured by the S&P 500 (red line) have zoomed far beyond the total returns delivered by gold (blue line), even when taking into account the -34% decline associated with the pandemic:
Not only have stocks and bonds outperformed gold over the long-term, they have also exhibited lower volatility than gold over time. To me, if stocks as a risk asset have consistently delivered better long-term returns with lower volatility profile, the choice between stocks and gold is a no brainer.
At the end of the day, many people flock to gold because it’s a real, hard asset. Something you can feel, touch. Corporations do not have the same qualities. But at the same time, gold’s value as an asset only appreciates based on speculative demand. Gold doesn’t make anything, it doesn’t grow, it doesn’t generate a profit. Companies, on the other hand, can grow, innovate, hire new people, grow more, and generate a steady stream of earnings over time. In my view, that’s why they appreciate more over time, and are ultimately a better long-term investment.
In the current climate, uncertainty can leave many investors, especially those nearing or in retirement, fearful of what’s to come. This can cause investors to look to commodities like gold to hedge against risks. A better solution may require pivoting your retirement investing strategy.
To help you do this, it’s important to understand
how recessions work, how long they last, and how to potentially protect
yourself and your family from long-term damage to your assets. We can help
you with our free guide – The Economy is in Recession: 5 Insights to
Navigate Your Way Through It.5
If you have $500,000 or more to invest, get our
free guide today. You’ll learn the most scope and impact of recessions, and get
our viewpoint on the most important moves you can make to weather this one.
Don’t wait—get this guide today.
Disclosure
2 The Wall Street Journal, July 24, 2020. https://www.wsj.com/articles/gold-climbs-to-all-time-high-topping-2011-record-11595612234?mod=markets_minor_pos4
3 Zacks Investment Management reserves the right to amend the terms or rescind the free The Economy is in Recession: 5 Insights to Navigate Your Way Through It offer at any time and for any reason at its discretion.
4 ICE Benchmark Administration Limited (IBA), Gold Fixing Price 10:30 A.M. (London time) in London Bullion Market, based in U.S. Dollars [GOLDAMGBD228NLBM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM, August 3, 2020.
5 Zacks Investment Management reserves the right to amend the terms or rescind the free The Economy is in Recession: 5 Insights to Navigate Your Way Through It offer at any time and for any reason at its discretion.
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