Personal Wealth Management / Expert Commentary
Ken Fisher on Gold's Recent Rise
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses gold’s recent rise and what it means for investors. Ken says some investors think of gold as an inflation hedge or volatility dampener and that is potentially why gold has performed well recently. However, Ken points out that gold has historically not provided investors the benefits many perceive.
Ken explains that gold is a commodity with relatively few use cases compared to other commodities, such as copper and oil, but with lower supply—which can make it very difficult to forecast its price. Ken also points out that positive gold returns have been historically concentrated in short periods of time, which require impeccable market timing. For example, the price of gold peaked in 1980 and didn’t surpass that level for over 30 years despite ongoing inflation and volatility. While Ken acknowledges gold can do well in short periods, he says stocks and bonds have had higher returns than gold with less volatility over the long-term—making them more suitable for most investors.
Ken Fisher: You know, it's funny. Funny, strange, funny, humorous, sometimes funny, sad, But gold gyrates around sometimes for this, sometimes for that. And I'll tell you, people ask me what I think will happen with gold. What do I think of gold? And I'll say, when I was young, a long time ago, having been in this industry over half a century, I forecast gold wrong so many times I made a solemn vow to never forecast it again in the name of good luck. And so far I've had some pretty good luck. And so I keep not forecasting gold. The fact is, gold has risen lately. Goes a commodity. It has some minor industrial usages. It's got the jewelry function. It's a commodity. It doesn't have as much usage as copper has, but, you know, it's a lot less plentiful. Doesn't have as much use as oil has, but it's a lot less plentiful. We get a lot more oil in the future. We don't get a lot more gold. People sometimes think gold is an inflation hedge. They sometimes think it's. Flight to safety mechanism. Sometimes they think it's this. Sometimes they think it's that. Here's what I can tell you. I know predicting is really tough. What has its price movement of late been? I think it's partly been driven by the fact that people have come to realize that crypto isn't what they thought it was, and a lot of people thought crypto was maybe a gold replacement as they come to realize crypto is not a gold replacement. More movement into gold in parallel at a time when we've had a lot of fear of inflation and people have put the mantle on gold, which they do off and on over time, that it's an inflation hedge. Let me make a couple of points. Gold hit a peak in 1980. It didn't get back to that level for 31 years. In the 31 years it had recurring periods of three, 4 or 5 years where it would go up 50% , down 50% , up 50% , down 50% . I went through the roof in 2011. As you got into the period pre pricing, the fear that the euro would blow apart tied to the concerns you remember about the pigs, Portugal, Italy, Greece, Spain, and would they be able to sustain and stay inside the euro currency as they were having problems from supposed. Inability to handle their governmental debts. Now, the fact is. That then after that. Goal fell for about four years by 40% . Since then, it's risen and is now about 1,314% above its 2011 level. 12 years later, let me say that differently. There's nothing wrong with gold. It's a commodity. It's volatile. The fact is, sometimes people think of it this way. Sometimes they think of it that way. Lately, they've been thinking maybe it's an inflation hedge. Mind you, over all those decades I just talked to you about, there was always inflation. You follow that and it didn't hedge that inflation very well. Number two. What can we say about it in the very long term that it has a return that's positive ? A little bit lower, long term average than, let's say, long term US Treasury bonds. With a higher volatility than bonds. That doesn't shock you very much because bonds are expected to have fairly low volatility, mind you. On the other hand, over those same time periods, very long time periods, it has about half the return of stocks. With an actually markedly higher volatility than stocks. That's the point that surprises people. Lower return, Higher volatility. Gold gets about 80% of its maybe 85% of its long term total return from about 15% of time periods where stocks rise about two thirds of the time. Bonds rise a little more than that. If you can predict gold. You need no advice from me whatsoever. Why is gold been strong lately? Well, partly because from 2011 to 2015, it was very weak. It makes perfect sense. It should rise after that. On the other hand, right now, people think of it as an inflation hedge. I want to point out it's a commodity. Commodities tend to be volatile in price. There's nothing wrong with that. But the reality is, if you think you know where gold going from here, you might be right, you might be wrong. But there's nothing I can do to help you. My opinion about what's going on lately is it's been volatile, like commodities will be. Thank you very much for listening to me. Subscribe to the Fisher Investment YouTube Channel If you like what you've seen, click the bell to be notified as soon as we publish new videos.
A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”
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