Do You Need Gold in Your Portfolio?

Transcript

Ken Fisher:

So gold's been doing just great price-wise lately, and every time I say anything about gold, I get a lot of criticism, because I don't really think you need gold to get to wherever you need to go to. But all kind of people believe you do, and that's fine. It doesn't bother me. Here's my point about gold. And you know, I make the same points even more so about crypto. Most of the demand for gold is not consequential to its price movements, because most of the price movements are driven by demand. That is almost purely shifts in sentiment. I think that's irrefutable.

If you study it, the usages for gold as a physical item don't go up much. You take instead a different metal like copper. Copper's price is not hugely driven by sentiment anymore than is the case for oil or fertilizer or aluminum, or those are entities that mostly have a lot of usage in the world in one way or another, in industrial or consumer product. And that's what it mostly is. With gold, it's mostly shifts in demand associated with shifts in sentiment.

And forecasting sentiment is treacherously tricky, and here's what that creates that I don't think people that are gold bugs are ever ready to accept. If you look at the long-term history of gold, and again, I've written about this a lot. You could see this in my Debunkery book. You could see this in my Plan Your Prosperity book. You could see this in my Only Three Questions book. You can see this just in the raw data. In the very long term, like the last hundred years or 200 years. That's a pretty long time. Longer than your investment horizon.

Gold gets all of its return out of about 15 to 20% of its time history in big spurts. And the other roughly 85, 80% of the time, it lags and lags badly, and sometimes is actually losing money for long periods of time. And when I say long periods of time, I'm not talking about a few months or even a couple of years. I'm talking about one of the spurts in that in my lifetime, where gold didn't hit a new peak for 28 years.

Very few people have the stomach to hold through all of that to get the long-term pricing. If you do, you are really exceptional. If you think you do, you're probably untruthful with yourself. Most people do not. Whenever you've got something that goes up a small percentage of history relative to the amount of time that it does not, timing becomes much more crucial for almost everyone.

Let me say that a different way. As I have said many, many times before. Stocks go up two out of three times in history. Two out of three months, two out of three years. If you aren't good enough to time stocks and time stocks badly, which most people do, there's no way in the world you're going to time gold well, other than sheer luck, and then you'll probably get caught on the other side.

Now, do you need gold? This is another point. Is it a safe haven? No, it's not a hedging feature against stocks and bonds. The easiest way to see that is to observe its price in 2022. It tends to actually correlate positively with stocks and bonds, not negatively. If it were a hedge against that, a safe haven, then it would correlate negatively. Check the correlation of anything you think is a safe haven to what you think it's a safe haven against, and they should be zigging and zagging with each other, not moving together one a little more or a little less. And sometimes in history that's been the case. But when the market falls, like in 2022, a lot of the time, more the time than not, gold falls too. It is not that safe haven.

Is it an inflation hedge? Yes, if you hold it in the long term, not if you hold it in the intermediate term. In the intermediate term it is not. Again, I take you to the period from 2021 / 2022 and into 2023 before gold started to really surge, inflation did and the gold price came later. That's just a recent history. I'm going to just say the same thing in the long term. If you hold gold long enough, it will adjust for inflation, but so will oil and so will lots of other things. And it is not singularly that inflation hedge. It's a kind of a myth that it is. But the sentiment for it comes and goes. And once it starts running like it has, I have no ability, nor have I ever thought I did have an ability, to predict when that price movement stops.

And I'm not saying that the price of gold will go down now. I'm saying timing gold is very tricky, and if you think you can do that, well, more power to you. Statistically, you're probably wrong. You might be right. I wish you luck, and I don't have a lot more to say about gold than that.

Thank you for listening to me and I hope you didn't find this disturbing.

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