Gold Just Isn’t Rising. What Should Investors Do?

In 1983 gold was $500 an ounce and the car I bought was just over £3,000. Now that car would be about £15,000 and gold is around $2,000.

All in all gold hasn’t risen in real terms by much over that time.

I do not have to tell you how much Apple
AAPL
has gone up in the meantime because everyone of us on occasion cannot but gnash our teeth about the spectacular rise of certain stocks over our lifetimes.

You don’t have to zoom in on the mega-winners. Here is a chart of the Nasdaq versus gold.

In case you miss it, that black line by the axis is gold’s performance and tech stocks have outperformed gold by about 20X.

Now I point this out because I’m tired of reading since childhood, which is a long time past, that the dollar will die or inflation will eat us all. If that is a worry you can stick your money into stock exchange-traded funds and never have to worry about inflation again.

I admit I was bullish on gold during Covid because inflation was obviously coming, and while there was a big camp claiming deflation was on its way, I felt bigtime inflation was an obvious outcome to me, while not to a lot of others. This should have meant gold going through the roof.

It did not.

Not only did it not go ballistic, it fell away a little and has generally flounced about as paper money burnt. It was hard to buy actual gold, but that didn’t seem to matter. Out of stock supplies didn’t sling shot the price, it only put a bit of a premium on the stuff as if no one really cared to pay top dollar for gold even when it was hard to come by. To make matters worse gold stocks, which are meant to be a leverage play on gold prices, fell sharply away.

Plague, inflation, war… nothing has set gold on fire.

Here is the chart:

Through all the inflation, dislocation and exploding money supply, gold is stuck going nowhere.

So what to do?

1. Do not believe gold is going to ever be money again. Gold is no broken clock about to be right twice a day. Gold is never going to be money. Do not listen to the same old predictions set to frighten an old man’s saving out from under his mattress.
2. Bear in mind a considerable percentage of available gold, available for electronics, dentistry, bangles, caress-able bars and glittering rounds, is increased by several percentage points a year.
3. The purpose of gold for governments is not as monetary backing but as a payment of last resort in war. If there was a war, they’d come on round and give you a nice government bond for your gold and that would be that.
4. Gold stocks should come in clips of 20 and carry a wealth warning.
5. You should own some gold.

“What!!!!” you say, after all that how can you say own some gold? The answer is in the word, “some.”

You cannot be too diversified. That does run against all the fun of investing, but if you ever want to get off the merry-go-round of risk, diversification is the only way forwards that isn’t abstinence.

Then there is this thing that no one likes and few consider when they invest or trade. Tax.

Yes you can build your wealth in all kinds of shelters, but the good thing about gold is that over the long term it keeps up with inflation. That might sound a bit weak, but that is a lot better than other ways to save where the result is an inflation shrunk result because interest rates offer negative inflation adjusted return.

Then there is one more thing. If, and it’s a big if, gold can break the recent all-time highs, $2,500 would be on the cards. It just has to get above $2,100. So the thing to do with gold: buy bits and bobs every so often and watch for a clear breakout.

Alternatively buy an index tracker and forget about it, but let’s face it, that’s no fun and nothing beats the “feels” of a Gold Eagle in your hand.