Today on 27 July 2020 Gold has reached a new all time high over $1,940.
After writing about gold for over four years it is vindicating to see gold reach a new high in dollar terms. I certainly don’t know how high gold will go but as I speculated it would, gold has taken out the 2011 high of $1,920 under Trump.
Silver has been rallying as well. While still far from its all time highs above $50 per ounce, it is trading north of $25 per ounce for the first time since 2013.
I wrote my first article on this website advocating for holding some precious metals like gold and silver over four years and four months ago on 19 March 2016. At that time gold was trading around $1,250 per ounce.
Now for the first time since September of 2011 gold is trading northwards of $1,900 per ounce. This is a 52% increase in price.
So with gold trading near the September 2011 high of $1,924 I’d like to look back at some of the previous statements I made about gold.
In November of 2019 Gold was trading in the $1,520 to $1,445 range. It had suffered a large interday drop and I predicted gold would reach $1,600 in 2020, which it did just a couple monthly later in January.
While the recent price action looks rather bearish over the next 3-6 months I think gold will reach $1600 in 2020.
From "Gold Receives a Severe Drubbing" 9 November 2019
Back in 2017, a few days after President Trump was sworn in, I predicted gold would reach $1,920 during his first (and probably only) four years.
I also think the dollar will lose a great deal of value and the price of gold will outperform and reclaim the 2011 high of $1,920.
From "Trumped Up Economy" 22 January 2017
Gold has not hit $1,920 yet but it is within an Andrew Jackson (or Harriet Tubman?) of that price.
Back in 2016 I predicted gold would reach $2,000 or higher.
I would have preferred to have bought gold at the lows of $1,040, but as yet I don’t have a crystal ball that allows me to perfectly time the bottom of markets and I firmly believe that based on the fundamentals gold will make new highs in excess of $2,000.
From "Inflation Destroys Dollars" 19 March 2016
Gold isn’t at $2,000 yet but it seems increasingly likely. I of course can’t predict the future, just make educated guesses on price and time. But so far gold has been a solid investment. The technical damage after the 2011 high has been filled in and the chart is looking strong.
Silver has done well in the very short term. It’s previous high was almost $50 in April of 2011. It’s been steadily trending downward since then, making a low of $11.64 in March of 2020. Since then it has rocketed back up to $22.82 in a 96% increase in just a handful of months. It is still well shy of the $50 high but silver could provide a better value and more upside potential than gold. However, it tends to be more volatile.
As of writing this article spot gold is trading at $1,783. August gold futures are trading at $1,800. Gold hasn’t been at the $1,800 level since November of 2011, although it came close in October 2012.
August Gold Futures
Silver is up to $18.19.
I’ve been bullish on gold since 2013. I think gold has more legs to go higher. There is a lot of uncertainly right now in the short term. The November election, Covid-19, social unrest, and of course the national debt. Gold is often used as a safe haven to park money amidst uncertainty.
Inflation Pressures
With many people unemployed, that will put downward pressure on consumer spending. However, between credits cards, stimulus checks and unemployment benefits, people will still be able to spend. So in categories like food and other essentials, I think there will be price inflation. And even the CPI, which historically under-represents actual price increases, shows food prices increasing by 4.8%.
While the COVID-19 recession is undoubtably be deflationary, the government’s response will surely be to print and inflate. Gold should continue to do well in this environment.
Just about four years ago I wrote the first article on HowIGrowMyWealth.com “Inflation Destroys Dollars“. I wrote about how what I do to protect against price inflation and dollar devaluation. Specifically value investing and precious metals. So in retrospect, how did those investments do?
As a control we’ll add the U.S. Dollar Index ($DXY, shown in green), which compares the dollar’s strength against a basket of other currencies. To represents “stocks” I’d added the S&P 500 Index (SPX) (shown in black).
I’m using the Vanguard Large Cap Value ETF (VTV) as a proxy for value stocks (shown in red). You can see how my current and past individual value stock picks have done here. Gold futures are in yellow and silver futures in gray.
As you can see the S&P 500 has been the place to be. To be fair gold isn’t too far behind. Gold was in fact keeping pace with and surpassing S&P 500 this past April. So while gold has been a good hedge and having exposure to stocks has continue to be important.
Value stocks have lagged the S&P 500, particularly in the aftermath of the December 2018 selloff.
Silver is only slightly outpacing the dollar index, up just 7.15%. Silver has had a few failed breakout attempts, but continues to underperform. The gold/silver ratio that some precious metal bugs talk about would suggest that silver is a better value right now.
Costs continue to rise each year as the dollar loses value. But as measured by the DXY the dollar has kept its value against other currencies.
As I wrote back in November of 2016 in “I Own Too Much Gold“, you don’t want to own too much gold as a percentage of your net worth. The performance of the S&P 500 is a good reason why. If gold ever were to take off a 10-25% allocation would be more than sufficient.
We certainly haven’t see broad hyperinflation yet in the US, but my rent, food and medical costs continue to rise each year in excess of the government measured CPI. As I have for the past four years, gold and precious metals remains an important (albeit minority) portion of one’s portfolio.
If you are just starting to buy precious metals emphasizing silver over gold (while still buying both) could be a good approach.
We are weeks if not months into various shutdowns in the United States due to the novel coronavirus. The government has already taken many moves to try to soften the economic impact of the stay at home orders, layoffs and other effects caused by attempting to slow the spread of the virus.
Interest rates have been slashed back down to zero. States who have made irresponsible choices on pensions and spending are requesting bailouts. Unemployment is spiking. Stimulus measures are being passed.
The US Economy is based on consumption and debt. Over the long term an economy can’t survive based on consumption and debt. Long term prosperity is based on producing more than you consume. The US consumes more than it produces and makes up the difference with debt. But this article isn’t intended to address that. Taken at face value, the US Economy is based on debt.
With the majority of US states in some type of lockdown. People can’t go out and spend money. Just a few of the impacts: travel, collegian and professional sports, going out to bars, dine-in restaurants, movie theaters, and amusement parks.
People can still shop online to consume and restaurants can serve via takeout and delivery. But the fact is there are major disruptions to the supply chain and people staying home are going to be spending less.
When I look at the markets. They seem to believe that either the stimulus will make up for any disruptions and/or the worst is behind us. The S&P 500 for example, fell over 35% from the peak, but has rallied back and is down just over 14% from the February 19 high of 311.59.
I do think the US government backed by the Fed will print and spend and stimulate the economy as much as they can. But the Fed can’t print masks, toilet paper, food, or goods and services.
The inevitable result will be price inflation and shortages. I don’t want to be doom and gloom. While there are real risks there is no need to panic over COVID-19. People have an amazing ability to adapt and unencumbered entrepreneurs are incredible at generating wealth and increasing standards of living for everyone.
However, there are real challenges and owning alternative assets like gold and silver could be a great way to protect wealth.
I also read a great article that compares the stagflationary episodes in past decades and what investments did well then. It isn’t a quick read but provides detailed and valuable information about What a Secular Bear Market in the 2020s Could Look Like.
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