Kelly Bullis
Have you noticed all the commercials to buy gold recently? In my short 67 years of life, I’ve noticed a pattern with gold. When times are “bad” (wars, inflation, bad leaders in Washington, etc.) gold becomes a great “hedge” to offer to folks who are afraid. Remember my previous articles on scam sellers using fear, uncertainty, and doubt (FUD) to get folks to do something they normally wouldn’t do?
Well, here are some statistics to help you counter the FUD out there.
Since 1990, gold had gone from $386 an ounce to a record of $2,147. Sounds good eh? That’s an increase of a factor of a little less than 6. Over the same period, the Dow Jones Industrial Average rose by a factor of 14. Over that period, gold increased at less than 5% annually while stocks rose 8%.
What about investing in the largest of the gold-mining companies? (Barrick Gold, Newmont Mining and Agnico Eagle, etc.) They have been terrible performers and are most likely not going to get any better. As a commodity with no significant industrial use, gold increased mainly with the cheapening of the dollars used to buy it, plus emotions (mostly FUD) on the part of the buyers.
Gold also benefits from the rising wealth of the world, which drives the demand for jewelry, but that demand is counterbalanced with increasing supply through better mining. Production from those mining companies has risen 50% since 1997, which is one reason Barrick Gold stock is cheaper today than it was earlier.
Gold doesn’t pay dividends! Stocks do. In fact, if you hold physical gold, you have to pay to have it stored. Stocks, by contrast, increase because the value of the underlying companies is determined by the imagination and diligence of the humans who manage and work for them. When you buy stocks, you buy brains and hard work.
Gold certainly has been a draw as a haven in bad times. But in times of catastrophe, gold’s record is mixed. For example, during the financial crisis of 2008, gold rose 5% as stocks dropped 38%. When COVID happened in March 2020, the S&P 500 index fell 34% in just over five weeks while gold held nearly all its value. In both cases, the stock values recovered, gold just held steady and didn’t grow as fast.
As a hedge against inflation, gold isn’t really that great. As inflation rises, so do interest rates. Gold doesn’t pay interest, so its relative position declines against bonds yielding 5% or more. Stocks rise over time, almost always over a decade or more. Gold does not do as well.
Gold is a short-term hedge against disaster. Beware! As soon as the “disaster” passes, a lot of folks start selling their gold so they can get back into the stock market, etc. Large sales volume of anything usually drives the price down and that is what usually happens with gold.
Have you heard? Revelation 21:21b says, “The street of the city was pure gold, like transparent glass.” (In Heaven, gold is among other things, paving material.)
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.