I was interested to watch this YouTube video produced by ETF manager, BetaShares which compared the differing views of Warren Buffett and billionaire fund manager, Ray Dalio.
Both men have been some of the most successful investors over the past 50+ years, yet they have opposing views regarding investing in gold, which I find very interesting.
How well has gold done?
As depicted in the chart below, the (USD) gold price has appreciated by 7.66% p.a. since 1970. However, between 1980 and mid-2002, the price of gold fell by an average of 4% p.a. Between mid-2002 and mid-2011, the price of gold appreciated at an extraordinary rate of over 20% p.a. Since then, gold is relatively unchanged i.e., its currently trading at 2011 levels, so there’s been no (nominal) growth over the past 11 years.
Whilst the very long-term returns (i.e., 5 decades) are quite healthy, it’s clear that gold can experience (10 to 20 year) cycles where it can deliver poor returns.
The upshot is that if you are going to invest in gold, you better get your timing right (buy after a long period of poor returns e.g., 2002) and/or be prepared to hold it for a very, very long time.
Why do people invest in gold?
Firstly, gold is seen as a defensive investment. That is, when investors become concerned about the future returns that growth assets (shares and property) might offer, they seek safer investments, one of which is gold. It is seen as a way of preserving wealth because gold is a scarce metal and as such, is expected to retain its value (as demand always exceeds tight/finite supply).
Secondly, gold can be seen as a better storage of value than currency, as the value of a country’s currency can be volatile. There are many factors that can affect the value of a country’s currency including interest rates, economic stability, inflation rate, current account balance, monetary policy such as quantitative easing and so forth.
Why aren’t I attracted to investing in gold?
Firstly, gold doesn’t produce any income, unlike other defensive assets such as bonds. Therefore, to generate an investment return, the value of gold must continue to rise over time. Howev
Do you have a question? Email to questions@investopoly.com.au and Stuart will answer in the podcast.
If this episode resonated with you, please leave a rating on your favourite podcast platform. It helps me reach more incredible listeners like you. Thank you for being a part of this journey! :-)
Click here to subscribe to Stuart's weekly email.
SPECIAL OFFER: Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog here.
Work with Stuart's team: At ProSolution Private Clients we encourage clients to adopt a holistic and evidence-based approach when making financial decisions. Visit our website.
IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.
