Gold made a record high of $3060 per ounce last week. Up 15% this year and 50% in the last twelve months, the trend has been relentless in a very volatile market environment no less. Investors are worried about the outlook for the economy, there is much uncertainty about financial markets and the world more generally, so why not buy a bit of gold?
Central banks have also been hoarding and physically moving many bullions of gold around the world’s known and unknown storage facilities. The US Dollar, long a nemesis for any commodity priced in the still reigning reserve currency, has also weakened. Speaking of which, there are rumours that the world may return to a gold standard, and imagine what that could do for demand.
It is hence not a question of whether we should be buying gold, but how much. Most diversified long-term investment portfolios tend to have less than 5 percent allocated to gold, so should we be going higher? The problem is we would need to sell something to buy more gold. If that means holding less equities, we could miss out on 4% annualized performance given the last thirty years.
What about protection? Gold held up well during the Dot Com crash and was up almost 10% in 2008. Gold got crushed in the early days of quantitative easing, losing 31% in 2013, and went down with the rest of the world during Covid. If we are worried about the end of times, then best to hold gold coins, as we can’t use a contract note to buy the last mushroom.
Comments