It’s not uncommon for my clients to ask three things: 1) Where is oil going? 2) Where are the markets going? and 3) Where is the price of gold going? Sometimes I feel they may regard my answer as overly flippant, but my response to all three questions is “I don’t know, and anyone who does isn’t working for a living.”
Well, except when it comes to gold – then I add in a little extra commentary. I still don’t know where it’s going but as a long term investment it hasn’t done much as far as I can tell. The price of gold back in 1800 was just a tick below $20 USD per troy ounce. By the time gold reached $1,000/oz about 208 years later that translates to less than a 2% annualized average rate of return according to my handy financial calculator. Which seems in line with the thinking that gold is a store of value as it’s growth is in line with inflation. Of course, that is another way of saying that the real return (inflation adjusted return) is pretty close to 0%.
If you look at the inflation adjusted price of gold, it’s all time peak was still in 1980 when the price was the equivalent of over $2,000/oz when adjusted for today’s dollars. In other words, gold would have to be trading at over $2,000/oz today to be at it’s all time high, but currenty it is close to $800/oz.
To be fair, gold’s price hovered around $20/oz for about 130 years, so if you only look at the last 78 years, it’s a bit of a different story. However it seems to me that there are other investments will give you higher rates of return with less volatility – investing in gold seems more of a speculative strategy and I have no clients with direct investments in gold.
Interesting Side Note: I read somewhere that if you took all the gold that has ever been mined in history, you would only have a cube that measured 19 metres on all sides.