It’s no surprise that we’re receiving more client questions about gold than ever before. The recent buzz is largely due to its surging performance. Since January 1st, an ounce of gold has appreciated 31%. Pair this with 13% and 27% returns in 2023 and 2024, respectively, and the asset seems shinier than ever.
But the case for gold has little to do with the past three years. In fact, gold’s economic purpose dates all the back all the way to 360 BCE, when Teos of Egypt used gold staters to pay the wages of Greek mercenaries. The world’s great empires continued to tie their economies to gold either directly or indirectly in the centuries that followed.
The United States’ decision to abandon the Gold Standard in 1971 only galvanized gold’s biggest believers. Many feared that this decision would lead to runaway inflation, unpredictable currency fluctuations, and an economic collapse. It’s this exact thinking that drives investor sentiment around gold today.
Gold’s utility in a modern investment portfolio is three-fold. First and foremost, gold tends to perform well when markets do not. Take the Great Recession of 2008, where U.S. markets fell 38% in one year and gold rose 31.5% during that same time period. Many attribute gold’s bad weather performance to its reputation as a “safe haven” asset – investors flock to it when they’re scared of the stock market. The second case for gold is diversification. Gold tends to have a low and negative correlation with many traditional investments.
A final reason is far less quantitative. There are many investors who hold physical gold in case of catastrophe. The thinking holds that gold will retain its value under a global financial collapse. Physical gold could theoretically replace currency in a destabilized world.
Regardless of where you stand, gold can be a powerful diversifier in small quantities (≤5%) for the right investor. Fortunately, modern investment vehicles now provide gold exposure within an IRA or brokerage account. This means there is no longer a need for a metal detector, secure vault, or revolver to own a chunk of the famous metal.
Performance of Gold, Stocks, and Bonds in Major Crises
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Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice, nor as a recommendation to engage in any specific investment strategy or action. Each individual’s circumstances are unique, and readers are encouraged to consult with their personal financial advisor or other qualified professional before making any decisions.