Gold Prices Ramp Up to 8 Year Highs

Gold prices closed Friday at $1,733 an ounce. That's a fresh high for the precious metal dating back to late 2012. One ouce of Gold is $220 more valuable since New Year's Day, a short 4-1/2 months ago.

In fact, Gold's recent rally is much more pronounced if you look at the multi-year returns. This is shown in the table below, using the standard calculation of compounding annual growth. That shows you the gain required each year to get to your end price of $1,733.

                        Dollar Gain     Compound Growth
 2020                   + $220
One year             + $436              +33 %                                      
2 years                + $440              +16 %
3 years                + $502              +12 %
5 years                + $515              + 7  %
10 yrs.                 + $500              + 3.4%
15 yrs.                 + $1,300           + 9.4%
20 yrs.                 + $1,443           + 9.0%

 
We have advocated since 2011 to use Gold as an insurance policy against financial calamity and unforseen disasters. It may not be needed for that much of the time, but is invaluable when things get scary. This shows you the longer term GAINS in holding Gold across the years, during good and not so good times.

Notice the sub-par returns on the 5 and 10 year holding periods. That's due to the three year Gold year bear market, 2013-15 losing $600/ounce or about 1/3rd.

While you can certainly find many other time frames in which Gold underperformed other investments like stocks or bonds, we still feel a weighting of at least 10% in Gold is warranted now in most diversified (balanced) portfolios.

Gold has experienced a really good century thus far; $100 invested in stocks (S&P 500) grew to $276, while $100 in Gold bullion grew to $566. Besides the three year losses cited above, Gold prices completely ignored the 2000-2002 bear market, and the 2007-2009 Great Recesssion, rising 18% and 70% in those two time spans.

Now, you're a smarter investor, and a Gold afficianado too!
 

Thanks for reading!

2020 Bear Market Extends Coronavirus Losses

The stock market's near 3,000 point loss in Monday's trading now places it in the 6th position in the list of the worst bear markets since 1946!

Here's the table. I have highlighted it in RED in care your tired eyes have trouble reading it. Mine do.

Dates (date range)	Percent Loss	# Months
2007-2009	-54	17
1973-1974	-45	23
2000-2002	-38	33
1969-1970	-36	18
1987	-36	3
2020 - ?	-31.9	1
1961-1962	-27	7
1976	-27	17
1966	-25	8
1946-1948	-24	36
1981-1982	-24	15
1956	-19	19
1978-1979	-16	20

While many stocks are down more than 30%, a few are not as badly damaged; very few. None-the-less, remember the Math. A 30% decline in a stock will take a 43% gain to get back to even. 100 / (100-30).

That may be a tall order, or one that will take months of patience to pull off. I can only hope that you are diversified with some bonds, cash and Gold to partially offset the stock prices falling.

Continuing from last week's post, the stock market's been on an 11 year run, averaging +14.7% compound growth each year. If the historical long term market gain is closer to 10% per year, then consider this.

The Dow Jones could sit here at Dow 20,000 for one full year, and not move - and then you would have your +10% growth rate over the past 12 years! The move from 20,000 to near 30,000 was "gravy" so to speak. In finance, it's called 'reversion to the mean'.

Recall the last sharp BULL run in stocks; 2003-2007, almost a doubler, or +14% each year. We know what 2008-2009 gave us after the bull died (see table). Or how about 1995-1999, another 5 years, with a +26% per year barn-burner.

Then, only to see 37% lopped off prices in the 2000-2002 bear market. If you look then at the bull/bear market 8 year gains, 1995-2002, your back down to a +9.4% average gain. See the pattern here?

So any good news from this predicament? Well, sort of. When bear markets run their course, the ensuing year(s) are usually outstanding - due to pent up demand and better increasing confidence in the economy and earning prospects.

When could that happen? No human knows for sure, but when total despair and surrendar are being displayed - when all sense of purpose as an investor are erased; when there's "blood in the streets", quoted Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family. "Buy when there's blood in the streets, even if the blood is your own."

Stay tuned.

 




 



 

Dow Jones Industrials Enter Bear Market Today

The popular Dow Jones Industrial Average officially entered a Bear Market as of 4:00 PM today, Wednesday, March 11th.



It took just 19 trading days to accomplish this - dating back to just mid-February when it closed at an all-time high of 29,551.42.

I reported in the March 10th blog post of the significance of Bear Markets, and how you can prepare for them with some risk reducing strategies with your money,

 
The Dow Industrials are now down 20.3%, or 5,998 points from the peak last month, February 12th to be exact!

The widely followed Standard & Poor's 500 Index, used moreso by professional investors and institutions, escaped bear market status by a thin margin Wednesday. It's down 18.9%, and would need to fall about 38 points to enter it's own -20% bear market.

Stay tuned for more news as it develops.