How Does Gold Benefit Your Portfolio?
Gold has been featured in the news lately due to its recent rise to all-time highs (over $2,300/ounce at the beginning of May).
Our firm owns gold across most of our client portfolios, typically holding no more than 5%. We own gold primarily as a hedge against stock market volatility. Our gold positions can be an attractive liquidity option during volatility in other asset classes because it has historically held up better than both stocks and bonds in volatile capital market environments.
Additionally, the prospects of larger US government deficits loom which may ultimately impact the US dollar’s currency reserve status. Gold could prosper if this situation continues (similar to the rising deficits during the decades of the 1970’s and 2000’s):
Historically, gold has been associated with a hedge against inflation, meaning gold increases in value as inflation increases. This was the case in the 1970s as inflation ran rampant and gold experienced its best decade of returns shown in the chart above.
However, over the last several decades, you could more accurately describe gold as a hedge against the threat of inflation. Evidence of this can be found in the 2000s when gold outperformed the stock market handily. Yet the consumer price index rose at a compound rate of just 2.6% a year, which was lower than most economists predicted that decade.
The 2000s was a decade prominent with terrorism, war, and rising political polarization. Unfortunately, we are experiencing much of the same this decade. These factors could certainly be reasons for gold’s double-digit returns so far this year.
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
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Compass Wealth Management is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where Compass Wealth Management and its representatives are properly licensed or exempt from licensure. This article is solely for informational purposes and is not intended to be relied on as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Compass Wealth Management to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investments involve risks.