Gold Is A Precious Metal, Other Times Not So Much - The Business Cycle Helps You Decide - Part 2

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Summary

  • Gold is a precious metal.
  • Sometimes it acts as a metal.
  • This model helps you decide when to invest in it.

On 12/23/2020 I published the article Gold Is A Precious Metal, Other Times Not So Much - The Business Cycle Helps You Decide. The article examined the relationship between the price of gold and the business cycle and other commodities.

Throughout the centuries gold has been the premier investment to protect a portfolio from the ravages of inflation. For this reason, it has been historically considered a store of value.

 

There are times, however, when gold prices suffer a prolonged decline. The above chart shows gold prices going from 2007 to March 2020. Gold moved from $600 to $1,900 from 2007 to 2012. It stands below $1,700 as of this writing (March 17, 2021). Gold did not show any appreciation for more than 9 years. This performance challenges the concept of gold as a store of value.

 

The concept of store of values is further challenged by the performance of gold compared to the S&P 500. The above chart shows the relative performance computed as the ratio of gold prices to SPY. The decline in the lines in the graph says SPY has outperformed gold from 2012 to 2020. Gold has outperformed SPY – the lines in the graph were rising – from 2009 to 2012.

The point I am trying to make is investing in gold is not as easy as reported by the passionate and often biased sponsors of the metal. And it does not necessarily outperform the S&P 500 all the times. Gold, however, has an interesting and possibly profitable pattern when compared to other metals.

There are times gold is a good investment. Other times investors should accept the idea it is not. Gold is a commodity – a metal. In the article mentioned above I showed how the price of gold has some distinguishable cyclical and profitable patterns when compared to other metals.

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Comments

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Edward Simon 3 weeks ago Member's comment

Interesting and a bit contrary to most gold bugs who tend to discuss gold as a hedge against inflation and currencies rather than as an investment in a commodity such as copper, silver, wheat or soybeans.

George Dagnino 3 weeks ago Author's comment

Thank you!. Most commodities move in the same direction at the same time becasue of the effect of the business cycle. Reminder: Complimentary subscription available on www.peterdag.com

Gus B. 3 weeks ago Member's comment

Good read, thanks.

George Dagnino 3 weeks ago Author's comment

I am pleased you liked it. Thank you. Reminder: Complimentary subscription available on www.peterdag.com