Is Gold a Safe Investment In 2020 And Beyond?
Updated: Nov 19, 2019
Simply, what is your definition of safe? If safe to you means that gold will never lose value and will always remain at the same price, or better yet, continue to go up like a rocket…then NO gold is NOT a safe investment. If safe to you means that gold ownership can help diversify an existing portfolio and hedge against inflation and preserve wealth, then absolutely yes, in our opinion, gold is a safe investment.
You see, gold is an investment asset class and like other investment asset classes prices go up and prices go down. The key is to offset losses by diversifying to the best of your ability. Does gold fit that bill? Heck yea.
So, is gold a safe investment in 2020 and beyond? Our answer- It really depends on what you want out of gold and what your perception of “safe” is. If you really think about your goals and objectives when investing in gold and silver and implement an entry and exit strategy and follow it, you’ll be safe.
Good Times Bad Times, You Know We’ve Had Our Share…
Every year owning gold isn’t Unicorns, Rainbows and Cotton Candy We at Gold IRAs101 are big proponents of owning gold, but we are also bigger proponents of the truth. Looking back on 2018, it was not a great year for gold. Since the January peak, the price had fallen by 15%, and although now it has risen slightly against the background of nervousness in the stock markets, it still takes positions 6% below the peak.
It’s October 2019 and gold is on a trajectory upwards, pulling back, but still moving up. There is a lot of speculation, on why- as usual, but I really don’t think anybody can really tell you why. That’s gold people, embrace it or ditch it. Supply and demand, economic climate, GDP, yada, yada, yada…sure that all plays a role BUT, all you need to know is that the price of gold goes up and the price of gold goes down. Over simplified, perhaps- we are simple. We own it for other reasons in our portfolios, so the price fluctuations don’t bother us as much, but we see how it could impact your decision to own it.
So what’s is good for?
Gold has traditionally been considered a safe investment and is considered a hedge against inflation in major economic regions, such as the United States, the Eurozone or China.
For a more detailed study we analyzed the price of gold over the past 50 years, the S&P 500 index, the ratio of GDP growth and US inflation. In the interest of a historical comparison, prices in US dollars were taken as a basis.
The role of gold as a defense against inflation
Over the past 50 years, inflation acceleration and rising gold prices, or vice versa, inflation slowing and falling gold prices for the months coincided only in 52% of the months. However, in annual terms, they moved in one direction only 57% of the time. It turns out that for about half of the period, gold and inflation move even in opposite directions. Similarly, we can consider the price of gold in comparison with average inflation. In those years when inflation was above average over the past 10 years the price of gold rose at 59% over the period. Therefore, in a medium with moderate inflation, the relationship between inflation and the price of gold is quite small.
Where is the sweet spot ? Gold protected the value of assets extremely well in
times of high inflation.
In those months when annual inflation was at least 1.5 times higher than the average over the past 10 years, the price of gold compared to the previous year rose as much as 95% of the time, and in those days its profitability averaged 52% in a year. Unfortunately, such a restriction, of course, reduces the sample by only 42 months, which in general terms coincides with four periods with accelerated inflation: 1) the beginning of the 1980s; 2) in places from the mid-2000s and more sequentially to the global economic crisis; 3) 2011 and 4) from the spring of 2018 to the present moment.
Gold is like a haven
In theory, gold should also be that safe asset where the money goes when it is clear that everything is far from the best in the economy or financial markets. To study this issue, we compare the price of gold with economic growth, which is reflected in the gross domestic product, and with stock prices, which are reflected in the S&P 500 index with a long history uniting the largest US exchange enterprises. Theoretically, there should be a mutual negative relationship between the price of gold and GDP, as well as the price of gold and the S&P 500.
From the data, it follows that the slow growth of GDP (below the average for 10 years) and the growth of gold prices (or, conversely, higher than average growth and a decrease in the price of gold) coincide at 63% of the time. Often, gold is added to one’s portfolio to protect in situations where, due to a negative mood, risky assets such as stocks or real estate fall.
Profiting from Gold
Yes you can, but maybe not in the way that you would expect. Gold, like other raw materials, does not pay dividends and interest and that’s exactly what we love about it. You see, to rely on dividends and interest you are relying on someone else’s performance. It is trivial compensation for taking on massive risk. The risk is that the company could go out of business and you could lose all or most of your investment. Gold on the other hand does not rely on any company’s performance. Gold relies on what it’s inherent value actually is in the moment. Gold is second to none.
The place of gold in the investment portfolio
A reasonable suggestion for the long-term ordinary investor, is to use gold to diversify risks. If we always wanted to maximize the expected absolute return, then, in fact, we would have to constantly invest 100% of the money in equity markets. Unfortunately, in this case, the value of our portfolio would become unbearably unstable, we could expose ourselves to the risk of zeroing the account, and, most likely, would see very long periods when other asset classes would show better returns. How many of us will be able to remain calm if they lose half our money, spend five years in the red with their investments, or ten years in a row watch their asset class hit their face in the face of a hotter asset? This happens with a homogeneous portfolio, and we will never know in advance what will happen next.
To mitigate, different strategies, are also added to the portfolio. Historically, they could provide lower overall returns, but their returns fall on other periods. If one asset currently shows poor returns, then another may, for example, simply shine. Gold can fill this role.. The 1970s and 2000s were not the best time for global stock markets, but it was during these decades that gold provided high returns. However, when diversifying, one should be careful that if we take in our portfolio a too large share of assets with a lower expected return, then in the long term we will lose too much in the total return.
In closing, is gold a safe investment in 2020 and beyond? We believe it is.
If you decide that a Gold IRA or a Gold 401k rollover or maybe even a transfer may be right for you and you want to learn more we encourage you to request more information from Regal Assets. They will send you a free, no hassle Gold Investment kit once you click on the link below.
To see a review on Regal Assets, visit our site at GoldIRAs101.com We have personally used these guys for our gold investment purposes and highly endorse them.
The Gold IRAs 101 Team