Have gold’s go-go days arrived? Bullion bullishness is rising with its recent price breaking $2,100. Costco says it can’t keep gold bars in stock. But be gold-darned careful before embracing the yellow brick road. Gold requires impeccable market timing. Otherwise, it’s portfolio pyrite—a lead weight. If you can’t time stocks, don’t try gold. Here is the non-evident evidence. Gold chatter ascended with its 11.7% climb since early October to an early December intraday record. Some cite geopolitics and 2024’s looming elections. Many pin it on falling interest rates. Lower rates render lower bond payouts, providing less competition for the no-yield mythical “safe haven.” But before buying, learn gold’s behavior as a commodity, without earnings, adaptability or dividends. Yes, its 11.9% year-to-date return sounds great. But that’s all just from two months. Since 1974, when the gold standard’s last gasps vanished, through 2022, gold annualized merely 5.0%. Sounds less great! Global stocks fully doubled that, annualizing 10.5%. And US stocks did 11.9%. (Even US 10-year Treasurys annualized 6.7% total returns (yield plus price change). Yet surely gold’s “stability” justifies those lower long-term returns. Wrong. Consider 1-year standard deviation, the measure of yearly return volatility around longer-term averages. Gold since 1974 has a standard deviation of 19.0% — well above world stocks’ 15.0%. Highly unstable. Low returns and high volatility reveal the stark truth: With gold, timing is crucial. Gold’s gains boom big, but rarely — with long stagnations and deep declines between. The recent intraday pop above $2,100 shows this. Hovering near its August 2020 $2,067 peak, gold is only now, 40 months later, flat. US stocks are up over 48%. Stocks’ dominance over gold remains despite 2022’s bear market. And longer-term? After a late-1970s boom, gold peaked at $850 in January 1980. It didn’t get back up there again until January 2008 —28 long, lonely years later! That boom pushed gold’s record high to $1,895 in September, 2011– while Europe’s debt “crysis” gyrated. Then, gold dropped 45% through 2015’s low. It didn’t re-see $1,895 until 2020. Nobody can time that volatility. Gold’s returns are positive in only 58% of all rolling 12-month periods since 1974—a coin toss– while US stocks were in 80% of them. If you can’t time stocks well, holding long term still works. With scant industrial utility outside jewelry, gold’s fluctuations stem mostly from sentiment swings, defying timing. If gold appeals, ask yourself why. Many think it’s about inflation or bear market hedging. But 2022 disproves all that. Gold initially climbed after Russia invaded Ukraine, nearing record levels that March. Then it dropped with stocks to a slightly later October, 2022 bottom. Since their lows, gold has climbed alongside stocks. A hedge shouldn’t parallel stocks’ swings. Moreover, inflation averaged a scorching 9.5% y/y during gold’s 2022 slide. It didn’t hedge inflation. Rethink gold’s many long profitless periods. Inflation always paralleled and, hence, wasn’t ever hedged. Simply wasn’t! And the notion that falling rates goad gold higher? Iffy! As I’ve long written, central bankers never know what they will do next month — how can you? And long rates? If falling long rates boost bullion, they would show a strong negative price correlation. But they don’t. Pick any reasonably long period and the correlation is basically zero — meaning no positive or negative historical linkage. Gold stocks? They may add dividends and capitalism’s magic. But as a group they are, again, more volatile than broader markets, typically rise most in early equity bull markets and usually act like small value stocks, again needing timing. If you can time gold, you need no advice from me, at all. But for most investors, conventional stocks and bonds simply function better. Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 17 countries globally.
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