Tuesday, September 27, 2016

Gold Will Still Double From Here!

I was cleaning out my 'to read' pile recently and found notes I took at an industry meeting back in 2012.  One of the notes I had written down was a quote from a presenter and read as follows:

Gold will still double from here, use GLD & gold stock mutual funds.

I have no idea as to the full context of the presentation - although unsurprisingly it was from a presentation by a firm that is a gold dealer - nor why I jotted down that particular comment.  But it caught my eye as I reviewed my notes from that conference, and since we didn't take any action to include gold in our portfolios I decided to take a look at how gold has played out and see if we might have missed out on something.

We dug into some data and found that the exchange traded fund SPDR Gold Trust (ticker: GLD) traded in the $40-50 range throughout 2005 and then shot up over the coming years, topping out by spending most of 2012 in the $155-180 range.  So GLD had tripled in the seven years preceeding the conference session when I had jotted down that pearl of wisdom, as it was right around $165 in mid-November 2012.

Over the last few weeks GLD has been hovering around $125*. . . meaning over the past nearly four years gold has lost 25%.  But at least investors have received  some cash flow in the form of dividends. And GLD doesn't even pay dividends, so that loss has gone right to investors' bottom line.

By contrast, the iShares exchange traded fund that tracks the S&P 500 (IVV) has moved from around $145 in the fall of 2012 to around $215 recently, a cumulative 48% capital gain.  Plus IVV has paid a dividend amounting to something just under 2% per year of annual income.

Put another way, a $100,000 investment in GLD in November 2012 would now be worth about $75,000; the same investment in IVV with dividends reinvested would be worth around $170,000.

So, as it turns out, I'm not sad that we once again ignored a popular investment, we did not jump on the bandwagon and that we stuck to what works based on academic evidence.  Although, in fairness to that speaker, and to make sure that the title of this blog isn't clickbait, I do need to circle back and say that I agree with him:  I have no doubt that gold WILL double from where it was in fall of 2012 to over $300 and beyond.

It's just that I might be retired, sitting in a rocking chair with a shawl over my shoulders before that happens!

*Amusingly, when I googled GLD this morning, one of the headlines that popped up was "Gold's SPDR Gold Trust (GLD) Is Ready to Rally"! It was all destined to double at $165 and now six years later at $125 it's ready to rally...I guess gold bugs are counting on a broken clock eventually telling the right time!

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