From Graham Stephan.
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GOLD PRICES:
In terms of the United States, Gold didn’t make a formal appearance until 1792, when congress passed the mint and coinage act, which created gold and silver coins in various denominations. From there, countries around the world wanted to standardize payments for global trade – so, the gold standard was adopted.
However, in 1931, President Franklin D. Roosevelt and the government signed Executive Order 6102 which banned private gold ownership during a time when Gold demand skyrocketed. This resulted in the US Government collecting the largest supply of gold, in the world.
Then, in 1970, our dollar was removed from The Gold Standard, allowing the government to pretty much do whatever they want – and, from this point on, our money was only backed by the belief that it’s actually worth what they says it is.
This resulted in the demand for gold SKYROCKETING, going from $35 per ounce in 1970 to $594.90 in 1980 – which works out to be $2445 in today’s prices, adjusted for inflation.
GOLD AS AN INVESTMENT:
-Gold has outperformed U.S. bonds, commodities, and global stocks over the past 20 years.
Even though the US stock market ‘technically’ had higher returns, over the last decade, gold has increased at an annualized rate of 8.3% – and during times of economic unrest, Gold not only remains stable, but it makes a TON of money.
-Gold outperforms the stock market in times of volatility.
During 1987 Black Monday, when stocks dropped 30%, gold barely had any change. Gold fell only 12% during the dot-com collapse compared to 44% for the S&P 500. During the 2020 crisis, while the markets dropped 20%, gold dropped only 0.86%.
-It’s HIGHLY liquid and lags only the S&P500 in daily trading volume, meaning – you can sell it almost instantly.
GOLD AS A HEDGE:
As Ben Carlson of ‘The Wealth Of Common Sense’ blog points out, the correlation of monthly returns between the stock market and gold is essentially zero over the long haul. For instance, both stocks AND Gold rallied in the 1980s, 2010s, and 2020s. When inflation remained high in 2022, Gold was completely unresponsive, and only recently did the price begin to come back to life now that we’re seeing global unrest and lost confidence in the US dollar.
BLOG HERE: https://awealthofcommonsense.com/2024/10/stocks-rates-gold-whats-going-on-here/
Generally, Gold outperforms during times of high inflation, economic uncertainty, and global turmoil that results in the dollar falling in value – and since Gold is detached from government, people rush to buy it when financial institutions are under pressure.
This is why I personally don’t see gold as a “replacement” to long term investing (or, something to go “all in” with) but rather, a way to diversify your holdings with something “extra” to fall back on. This is why a good portfolio isn’t usually just one “one asset class,” but rather – a mix of investments, each with its own strengths, that prevent your portfolio from completely falling apart if something were to happen.
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