Once again, gold has proven to be a solid haven investment in the face of market turmoil. Although bullion prices are down a bit this year, they have massively outperformed other major asset classes such as stocks, bonds, and cryptocurrencies, which have taken a beating.
It should be a reminder to prudent investors considering allocating a portion of their portfolio to the yellow metal.
“During tough times, owning defensive asset classes like gold and other inflation hedges tend to hold up better in relative terms,” says Sam Stovall, chief investment strategist at research firm CFRA. “It’s not that they go up but that they lose less when they go down.”
Recent evidence proves it. In the year to June 14, the
SPDR Gold Stock
exchange-traded fund (ticker: GLD), which holds solid bullion bars, lost 1.4%, according to data from
Now, compare the modest drop in gold with the
Invesco QQQ Trust
(QQQ), which tracks the tech-heavy Nasdaq-100 index and is down 31%, and at
SPDR S&P 500
(SPY), which tracks the S&P 500 index, was down 21% over the same period. Returns include dividends.
The performance of fixed income securities was also quite dismal. the
iShares iBoxx $ Investment Grade Corporate Bonds
ETF (LQD), which holds a basket of high-quality bonds, lost 18% of its value over the 5 1/2 months.
But perhaps the biggest surprise, especially for crypto lovers, is that Bitcoin, the original cryptocurrency, has lost more than half its value this year. That is at odds with the prevailing narrative of recent years, which preached that these digital assets would take the place of the yellow metal as a haven in turbulent times. It should be clear by now that the opposite is true, at least this time.
“For me, cryptocurrencies are the epitome of speculation because there is no way to value them,” says Stovall. “I think cryptocurrencies today are what dot-coms were in the 1990s.” The dot-com boom of the late 1990s ended when investors realized that companies with no revenue likely would not continue to make adequate investments.
While crypto has failed its test in this recent turmoil, gold has not. Better yet, it’s not too late for investors to get involved. However, you have to be smart about it.
“I think there are still some downsides to gold,” says Rohit Savant, vice president of research at commodity consultancy CPM Group.
A troy ounce recently sold for about $1,847, according to data from Bloomberg. Savant says an appropriate entry point would be when it drops another $40 to $50, to about $1,800 an ounce. “Over the next year, there’s going to be a lot of price volatility,” he says, and he wouldn’t be surprised to see the price break above $1,900 in the next 12 months.
In the longer term, gold would appear to be an even better bet. “Conditions for gold are perfect, with high inflation plus collapsing stock and bond markets, sowing the seeds of panic,” says Will Rhind, founder and CEO of ETF provider Granite Shares.
In fact, inflation has skyrocketed. It hit an annual rate of 8.6% in May, down from a comparatively modest 5.3% last August, according to data compiled by TradingEconomics.com. And experts don’t see any relief in sight any time soon.
However, a strong US dollar is limiting the price of the metal, says Rhind. The dollar index, which tracks the value of the dollar against major currencies, hit its highest level since 2002, according to TradingEconomics. Bullion prices tend to move inversely with the value of the dollar.
Eventually, the dollar’s rally will stall, Rhind says. “That’s when the price of gold will take off,” he says.