Gold’s century

Gold’s century by Michael J Kosares for USA Gold

While stocks dominated headlines, gold quietly performed

“For twelve consecutive years, gold was up every single year whether there were inflation fears, deflation fears; strong dollar, weak dollar; political stability, political instability. It didn’t matter – strong oil, weak oil. . . Gold went up for twelve years. . . When gold embarks upon its next move, I believe that you will see that long wave take gold relatively quickly, but it will be measured in years, up to a $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today.” –– Thomas Kaplan, Electrum Group (Bloomberg’s Peer to Peer Conversations with David Rubinstein)

Bar chart showing gold's annual returns since 2000 including year end 2019

1. Gold has produced positive returns in 16 of the last 19 years.

2. Gold’s average annual return compounded since 2001 is 9.47%. (2001-2019)

3. Gold’s appreciation over the last twelve months (from 3/20/2019) is 14.2% – even with the recent correction taken into account.

4. Gold has been a portfolio stalwart. A $100,000 investment in gold in January 2001 would be worth about $550,000 today. At gold’s peak in 2011, it would have been worth over $700,000.

5. Gold does not have a political preference – something to keep in mind as we move through another presidential election year. Its ascent has occurred during the terms of four presidents – two Democrats (Bill Clinton and Barack Obama) and two Republicans (George Bush and Donald Trump). Its largest gain – 31.92% in 2007 – came under a Republican (Bush). It’s second-largest gain – 29.24% in 2009 – came under a Democrat (Obama).

6. Gold is not swayed by who leads the Federal Reserve. Its ascent has occurred during the terms of four different Fed chairmen with four distinctly different styles and approaches to monetary policy – Alan Greenspan, Ben Bernanke, Janet Yellen, and Jerome Powell – and under a variety of economic circumstances and events.

7. Contrary to popular belief, gold does not need inflation to appreciate in value. In 2001 the average inflation rate was 2.8%. In 2018, it was 2.4%. Between those bookend years, the inflation rate exceeded 3% only three times. Its lowest reading was 0.1% in 2015. In short, some of gold’s best years were the result not of inflation but disinflation – a stubborn circumstance that has carried over to the present.

8. Gold’s price history is only loosely connected to that of the dollar. In January 2001, the U.S. Dollar Index stood at 113.39. It now stands at just under 102 for a decline of 10% during the period. The price of gold, on the other hand, rose 5.5 times – a pace well ahead of the dollar’s performance against other national currencies.

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