In 1971, the value of gold was set to $35/ounce. This was also the year that President Richard Nixon took the U.S. off the gold standard. If you were worried about the world coming to an end in 1971 because Nixon did this and you converted all your money into gold at $35/ounce, today those ounces of gold would be worth about $1850. That represents a 5000% return over 50 years. A return of 5000% return sounds impressive but….
If you had instead invested in the S&P 500 in 1971, you would have had an 18,000% return today. Which was the better investment over the past 50 years? We appear to be hearing the same cries of “the world is coming to an end” because of a great deal of debt, the stock market is over valued, the wrong political party is in office, there is too much government spending and other similar rhetoric. The thing is we’ve heard all of this before over the past 50 years, the sky is always falling and some insist in buying gold to protect oneself but is the case valid?
Demographically speaking in 1971, the world population was 3.7 billion. Today it is nearly 8 billion. The world population has doubled and yet the price of gold has barely nudged up despite the huge growth in population and massive currency devaluation through debt and printing. Additionally, we are seeing mass migrations from various places from Latin America to the United States or Belarus to Poland but the one piece of news I have yet to hear is that people are paying for smuggling, goods or services during these crisis’ with gold.
So when is gold in high demand? It would appear the demand for gold during highly adverse events such as Covid does drive demand for gold higher but the demand is generally short lived. Ironically, from a variety of charts, it seem demand from gold by central banks went DOWN during peak Covid.
Despite the strong case against gold, we still have a small position in gold and gold miners. Our specific holdings center around Exchange Traded Funds that own gold mining companies such as GDX and GDXJ. Our goal isn’t to get rich from these equities but rather to hold them primarily for hedges (insurance) against catastrophic scenarios such as the loss in confidence in currency or other mega disasters. Ironically, if either were to happen we aren’t sure we would be in a position to collect our “winnings” from holding these equities. We have lived through a variety of major catastrophes (Dot com crash, 9/11. Housing Crash 2008, and Covid) and gold just sits there doing little to nothing. Both pay a paltry dividend so at least that’s something. If and when we find something better to replace these “insurance” equities we’ll let you know.