(Mike Gleason, Money Metals Exchange) Near term, the picture looks mixed for metals markets.
On the one hand, the gold market is showing resilience by maintaining above $2,000 an ounce for most of the past several trading days.
On the other, silver gave way to some heavy technical selling this week, as did precious metals mining stocks. They could be pointing toward more of a selloff in gold before another attempt at a new record.
Of course, those who missed out on gold’s recent run-up or are looking to add to their positions should welcome any pullback as a buying opportunity.
Naysayers will try to scare buyers out of the market by claiming that gold has put in a major top or that its way overpriced.
Yet most of the anti-gold commentators out there were just as bearish on the monetary metal when it was trading much cheaper. Their anti-gold animus remains the same even as their rationalizations for it shift with the circumstances.
When gold is cheap, they say you shouldn’t buy it because it hasn’t performed well. Then when gold does start performing well, they say you shouldn’t buy it because it’s gone up too much!
Financial talk show host Dave Ramsey is known to get riled up at people who mention gold under any circumstance. He recently went off on a caller who asked about investing in gold.
Caller: I don’t really know what to do with that money because I don’t need it. But my gut feeling is to invest it in gold.
Dave Ramsey: No, no, no, no.
Dave Ramsey: We don’t put anything in gold. No. If you don’t need it and you want to let it sit somewhere, let it sit in a good mutual fund. That’s fine.
Caller: That would do better than gold?
Dave Ramsey: Oh, absolutely. I own some gold cuff links, and that’s the only gold I’ve got.
Caller: Okay. I just don’t want to do anything risky at this point.
Dave Ramsey: Risky is gold. Gold is much more volatile. If you look at the price of gold on a chart, it’s way up and way down much more than the stock market is, a lot riskier. And it does not yield the net return. The average annual rate of return on gold sucks. Gold is a commodity. Okay? It’s a rock that is yellow. It’s not, “Oh, it’s a golden rock. Woo!” Okay? So, the golden rock has no magical qualities. It’s a rock.
Where to begin. Well, first of all, gold isn’t a rock. It’s a precious metal. It’s listed on the periodic table of elements as a noble metal due to its conductive and corrosion-resistant properties.
So beyond being pretty to look at, gold is highly useful. In fact, the computer and satellite technology that make streaming the Dave Ramsey show possible depend on noble metals including gold and silver for their most vital inner workings.
As for gold’s utility as an investment, Ramsey’s tirade against it completely misses the mark. Gold helps investors reduce their exposure to risks inherent in financial assets. These include inflation risk, interest rate risk, credit risk, and counterparty risk.
Yes, gold does carry market risk. Just like any other asset, it can go down in value in any given year.
But Ramsey’s claim that holding gold is riskier than holding stock market mutual funds – which by the way are laden with fees that drag down returns – is just plain false.
In fact, during recent periods of extreme stock market volatility – from the great financial crisis of 2008 to the coronavirus panic of 2020 – gold helped to stabilize the portfolios of investors who had diversified into it. Over time, an allocation to gold is proven to reduce overall investment portfolio volatility and risk-weighted returns.
From 2000-2010, gold gained a cumulative 280%. But for the stock market, it was a lost decade. The S&P 500 actually fell 24% over that same period. And last year, while stocks and bonds both suffered double digit annual declines, gold prices held firm.
Regardless of whether gold beats the stock market’s returns again this year or over any particular holding period, gold will continue to provide investors with overall portfolio diversification and risk mitigation. That will help them sleep better at night versus being 100% exposed to Wall Street and the banking system.
Few gold bugs will put 100% of their liquid wealth or anything close to it into precious metals. We certainly don’t advise that sort of all-in approach here at Money Metals Exchange.
But paper bugs like Dave Ramsey will quite literally berate investors who want to allocate anything less than 100% to financial assets.
At the root of Ramsey’s hostility to gold is a stubborn belief in the supremacy of the current iteration of the U.S. dollar, more accurately described as the Federal Reserve note. In other recent shows, he has tried to pooh-pooh the threat of de-dollarization led by the BRICs countries – Brazil, Russia, India, and China – plus South Africa.
The reality is that the world is slowly but steadily turning away from the unbacked Federal Reserve note standard. It’s not just adversaries of the United States that are losing confidence. Central bankers around the world have been replacing dollar reserves with gold at a record pace over the past two years.
Maybe they know something the gold naysayers don’t.