Quantitive Easing (QE) programs are sure to debase fiat-based currencies over the long term. Advocates for ownership of gold are quick to let everyone know that paper money has no ‘real’ value while precious metals cannot be printed up by central banks.
Hard money cheerleaders have been sorely disappointed over the past couple of years. Despite extensive worldwide money printing the price of gold has declined over the past 3, 6 and 12-months. The GLD ETF showed a modest cumulative return of + 11.39% over the past two years. In the trailing year, the price of gold declined by 3.81%.
Gold bugs can take solace in noting that the past half-decade maintained a 71.41% rise overall.
Owners of equities have done better over the past two years while lagging when measured from five years earlier, back on March 30, 2008. The past 24-months saw a 22.35% total return on the SPY ETF. That almost exactly doubled the return of gold over the same period.
In a perfect world we would all have owned gold until its peak above $1900 per oz. in August 2011 and then switched 100% into stocks. I doubt many of us were prescient enough to do have done that.
The mixed bag of results, with gold outperforming over five years while underperforming lately, speaks to the wisdom of diversification. Each asset class has its own pros and cons. Recent events in Cyprus, of all places, proved that nobody can truly predict how future financial matters will unfold. The fluid nature of capital controls, taxation and legislation makes preparing for a variety of potential outcomes more critical than ever.
I don’t own gold personally but it’s hard to quibble with anyone who desires to have at least some portion of their overall net worth in something tangible. If you do opt to own precious metals make sure you deal through a reputable firm and be sure to take physical delivery. Paper gold (e.g., GLD shares or custodial certificates of ownership) may not provide the protection you seek in case of a true geopolitical firestorm.
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