By Gary Tanashian for Neptune Global
While it has been leading US and global markets, along with commodities to the upside since late 2022, gold’s real value is not found in its price at any given juncture (we will cover technical price projections in future articles). Gold’s value is found in the very fact of its stability over decades.
In a Keynesian fiat monetary system, that stability may appear volatile at times when money supplies are inflated to the cyclical (read: temporary) benefit of economies. That benefit is politely called an economic boom, and more realistically called an inflated bubble.
Gold can be viewed more as a barometer than a traditional asset that appreciates and declines in price-driven value. For example, when the financial/economic indicators are signaling pressure on the economy and by extension, cyclical assets, gold – a constant, an anchor – is assigned more value and hence, the price people are willing to pay for its safe monetary haven utility goes up.
When cyclical markets are appreciating, usually at the instigation of inflation created by policymakers (e.g. money printing), gold’s price will tend to lag and under-perform. That is why it is best to view gold as the long-term store of value that it is. Another way to look at it is as insurance; a bedrock component of a well balanced long-term portfolio. While a portfolio’s asset mix can be re-balanced as required by macro market conditions, the bedrock asset anchors the portfolio. That is not just theory, it is proven fact measured over decades, even centuries. For a picture of the dynamics described above, let’s review how greatly gold (candles) has under-performed the S&P 500 (blue line) over the decades of the most intense cyclical bubble making in stocks after a hysterical price rise in gold blew out in 1980. A brutal picture, isn’t it? Why invest in a rock that does not keep up with a long-term speculative party in stocks?
Because since the first stock market bubble blew out in 2000 the 22 year (and counting) trend has favored gold.
Hence we see its long-term value trending upward vs. the speculative world of paper assets. From a risk/reward standpoint and with reference to the first chart above, this 22+ year old trend appears set to continue.
The bottom line is that it is best not to micromanage the price of gold on any given day or in any given week, month or year. That is what speculators do constantly in stocks and other trading instruments. But if the gold price is set to continue to out-perform going forward, speculation could also work well, especially in quality gold mining stocks. That is another topic that can be covered going forward along with gold’s technical targets as mentioned at the open and of course, the more speculative precious metal, silver.
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