Why Now Could Be a Great Time to Own Gold
When you’re involved with the precious metals industry, you have to learn to take the long view.
Prices will change from day to day, but buying gold today isn’t about eking out a small profit tomorrow or next week. In uncertain times, gold can provide us with a measure of financial security — and uncertainty can strike next week, next year, a decade from now, or even further in time.
Take a look at this chart and see if you can identify those periods of uncertainty:
Source: Rosland Capital.
In 2006 and 2007, the price of gold surged as markets began waking up to the reality of an economy built on bad debts. From 2009 through 2011, a shaky recovery didn’t seem convincing enough to draw buyers towards other asset classes, and gold enjoyed three years of strong growth.
Prices seemed to have gotten into a slump, particularly with a 22% drop in 2013, but then gold increased in value by 22% just between May 22 and September 4, 2019.
And, as noted earlier, you have to take the long view:
Source: Rosland Capital.
Since 2000, the global economy has endured a dot-com crash, 9/11, Hurricane Katrina, a subprime mortgage crisis that nearly led to a second Great Depression, the Eurozone debt crisis, the 2011 Japan earthquake (and subsequent nuclear plant meltdown), a number of other multibillion-dollar natural disasters, and most recently, an escalating trade war between the United States and some of its most critical trading partners.
In spite of — or because of — all this instability, since 2000, gold prices have grown at an average rate of over 9% per year, as you can see in the first chart. This is still true in 2019, as the annualized growth rate, from 2000’s starting price of $285 to the current price of $1,538, works out to 9.28% per year, virtually identical to the 9.31% from 2000 to the end of 2018.
We often hear that gold isn’t as good as stocks when it comes to helping build a secure nest egg. When you look at the price on the S&P 500 Total Return Index, which includes dividends, it might seem like gold has been left in the dust since the turn of the century:
Source: Yahoo! Finance.
The index’s starting price at the turn of the 21st century was about $2,070. Today, it’s at $5,993. In 19 years, the supposed gold standard (pun intended) for dividend-paying stock indices has produced average growth of 5.76% per year. By this measure, you’d have left a lot of gains on the table by going with stocks rather than gold.
So, after 19 years of relative outperformance, why should we look at 2019 as a great opportunity to buy gold?
It all goes back to where we started: gold may help defend your assets against uncertainty, and we’ve already seen seeds planted that could grow into significant geopolitical and economic instability in the near future. Deloitte’s weekly economic update has highlighted several reasons for concern in August:
- Escalating trade war between the U.S. and China
- Inconsistent Federal Reserve actions
- General recession fears
- An inversion in bond yields (a reliable recession predictor)
- China’s economic slowdown
- Weakness in European economies
- A no-deal Brexit
These are all easily verifiable issues that have come to the fore in 2019, and at least some are likely to continue impacting the global economy in 2020 and beyond.
It’s an uncertain world. How will you prepare?