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| By Nilus Mattive |
I recently read this Barron’s article about Gen Z’s newfound interest in gold.
Here’s the gist of it …
A lot of younger investors have been seeing gold jump in price.
They want in.
But financial advisers and other supposedly-seasoned market pundits are telling them to stick with stocks and bonds.
In some cases, they admit that a small allocation to precious metals has some benefit.
However, they’re telling clients to avoid chasing performance or succumbing to FOMO (fear of missing out).
The irony, of course, is that they do not seem to think large allocations to stocks are just as dangerous right now …
Or that they’re also being driven by massive FOMO …
Or that we really could be on the cusp of a major re-ordering of the global monetary system and the dollar’s role (or should I say, DIMINISHING role) in that future system.
From my vantage point, any financial adviser should be telling their clients — including their younger ones — that a core allocation to precious metals is critical.
It doesn’t have to be 20%. But I reckon the vast majority of professionally-managed individual investment accounts still have zero allocation to precious metals other than token exposure through mining companies in major market indexes.
It’s the same with crypto, of course.
These alternate forms of money never seem to resonate with mainstream Wall Street people — whether you’re talking about the typical financial adviser or Warren Buffett.
The latter has famously hated gold for his entire career — saying the yellow metal doesn’t have any real economic value and that its entire value proposition resides with someone else paying more for your gold at some future date.
In more recent years, he has said the same basic thing about cryptocurrencies, too.
And he’s absolutely right!
But the same collective belief underpins U.S. dollars or just about any other monetary instrument.
Where Buffett is wrong — or at least a little disingenuous — is regarding gold’s long-term performance.
As The Street recently reminded investors:
“At the 2018 Berkshire annual meeting, he made the math plain.
“A $10,000 investment in an S&P 500 index fund in March 1942 would have grown to $51 million by 2018.
“The same $10,000 in gold returned roughly $400,000.
“His conclusion: For every dollar made in American business, gold buyers captured less than a penny.”
Well, sure.
But using a start date of 1942 is a bit of a trick. Because gold’s price was fixed for three decades following that point.
So, what if we choose a different date … like the one that allowed gold to start trading freely?
As I explained to you back in December …
“Since the U.S. dollar went off the gold standard completely in 1971, the yellow metal has risen from a fixed price of $35 an ounce to a recent level around $4,300.”
“That amounts to a 9.1% average annual return … not all that far behind the broad stock market’s average annual total return of roughly 11% over the same period.”
And since then, gold has gone on to a recent all-time high of $5,589.
If we use that number, the yellow metal has actually gone up about 15,869% over the last 55 years.
To put it in dollar terms …
If you had put $1,000 into the S&P 500 back in 1971, you’d currently have about $323,181 today … assuming all dividends were reinvested.
The same $1,000 invested in gold back in 1971 at $35 an ounce would have been worth about $159,685 at the recent all-time high.
So, yes, gold has done about half as well as the S&P 500 over the last half a century.
But it’s hardly done poorly.
More importantly, if the yellow metal happens to go to $10,000 an ounce from here — as many of us believe possible — then it would quickly jump to a performance level on par with that of the U.S. stock market!
I get it. I spent my 20s working at places like Standard & Poor’s, where stocks and bonds have always been the focus.
And I’m an ardent disciple of Buffett and his value-driven approach to investing.
At the same time, I also spent a lot of time with my Depression-era grandmother … who continually warned me about bank failures and handed me Morgan silver dollars at random times.
I still have those coins. And I value her lessons as much as any of the ones I learned during my time in New York.
I rectify the two worldviews in a very simple way — by combining them.
You can have your stocks and bonds. And you can have your precious metals and crypto, too.
Indeed, you SHOULD HAVE all these things. Whether you’re 20 and starting your investing journey or 75 and comfortably retired.
The percentages are the only question.
Meanwhile, if we move the conversation beyond gold itself and into the realm of gold-related stocks … the numbers get even more compelling.
Just consider the recent performance of Perpetua Resource (PPTA) … which I recommended to you right here on December 29 as part of our “Weissgiving Week.”
The stock has risen about 25% since that article hit your inbox … roughly doubling the performance of gold itself … and absolutely destroying the S&P 500, which has actually lost a bit of value over the same timeframe.
So, is there FOMO for anyone without an allocation to gold or gold-related investments right now?
Yeah, and it’s justified.
Because it was easily avoided with a proper asset mix from the start.
Best wishes,
Nilus Mattive
P.S. As you can see, with the right kind of investment, you can do far better than by just buying physical coins or bars.
Sean Brodrick has been making readers money hand over fist throughout this rally. And he just made an important discovery for the next leg higher.
