Long Gold, the only investment you need?
By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets
The below chart is from the Wall Street Journal, it compares the returns of Gold, Bonds, and the S&P 500 since 2000. The rather startling conclusion that must be drawn from this chart is that gold is king when it comes to returns. This goes completely against general investing knowledge; stocks are meant to be the crown of a portfolio.
There cannot be many investors who have held gold for over twenty years but those that have, have been nicely rewarded. I personally have always been told that gold has little value as an investment, beyond being an inflation hedge and a safe haven. The above chart is in stark opposition to this conventional wisdom. If you had lasted through the volatility of the gold price in the last decade, you would have achieved returns double those of the S&P’s in the same period.
This insight underlines the importance of looking beyond conventional wisdom. Obviously, one should not sell all their stocks and replace them with just gold. However, a small gold position seems prudent based on this chart. Although it may be a poor time to buy as prices are currently so high.
The other interesting element of this chart is the way gold moves in relation to the S&P. Again, traditional wisdom would say that the relationship is inverse. This is not the case in the past few years or after the dotcom bubble and financial crisis.
The one takeaway from this chart should be to challenge all wisdom that we are supposed to take as fact. While often this will probably result in no new strategies or information at times it can. As an investor, those opportunities can give you an edge over Mr. Market and your competitors.
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