Nice article though backward looking. Would be helpfull to have an understanding of factors that drove gold prices and how likely they are to continue over next 20 years. In general what performs well for one decade usually turns into a dog for next decade.
I thought carefully about whether or not I should talk about the reasons for the last Gold cycle, but I specifically dropped it, and here is the reason - the next rise of Gold is likely going to be from a different set of factors than the previous rise.
More often than not, Gold is a "flight to safety" trade. That worked out in March-Apr 2020 when markets were in panic. As markets revived, Gold stagnated. The 2005-2013 cycle, however, was a combination of (a) rise and rise of China and India, both of whom became big consumers and were thirsty for the metal, (b) the fact that it coincided with the last commodity super cycle, and the fact there were (c) micro-issues at play - mining in Zimbabwe was affected by Government regulations. Exactly which of these is repeatable is tough to predict for the next cycle.
In fact when hedging, you are better off buying an asset that is broadly uncorrelated than trying to predict exactly what factors may or may not play its hand, as factors aren't predictable. In fact in the past few years, bonds and equities weren't un-correlated at all as both were moving inverse to interest rates, and bonds would have been an exceptionally poor hedge, as 2022 amply proved (and continues to prove so in 2023). That said, bonds are likely perfectly good hedges for most years of an investor's life.
Gold too is a good hedge as it has proved to be a pretty uncorrelated asset over multiple cycles, small or big. Trying to find perfect commentary for what might happen next is a dangerous game to play for long term investors like me, and other coffee can investors. Instead, thinking of a portfolio that will stand the test of time is more vital, which is what I am aiming to build.
Nice article though backward looking. Would be helpfull to have an understanding of factors that drove gold prices and how likely they are to continue over next 20 years. In general what performs well for one decade usually turns into a dog for next decade.
I thought carefully about whether or not I should talk about the reasons for the last Gold cycle, but I specifically dropped it, and here is the reason - the next rise of Gold is likely going to be from a different set of factors than the previous rise.
More often than not, Gold is a "flight to safety" trade. That worked out in March-Apr 2020 when markets were in panic. As markets revived, Gold stagnated. The 2005-2013 cycle, however, was a combination of (a) rise and rise of China and India, both of whom became big consumers and were thirsty for the metal, (b) the fact that it coincided with the last commodity super cycle, and the fact there were (c) micro-issues at play - mining in Zimbabwe was affected by Government regulations. Exactly which of these is repeatable is tough to predict for the next cycle.
In fact when hedging, you are better off buying an asset that is broadly uncorrelated than trying to predict exactly what factors may or may not play its hand, as factors aren't predictable. In fact in the past few years, bonds and equities weren't un-correlated at all as both were moving inverse to interest rates, and bonds would have been an exceptionally poor hedge, as 2022 amply proved (and continues to prove so in 2023). That said, bonds are likely perfectly good hedges for most years of an investor's life.
Gold too is a good hedge as it has proved to be a pretty uncorrelated asset over multiple cycles, small or big. Trying to find perfect commentary for what might happen next is a dangerous game to play for long term investors like me, and other coffee can investors. Instead, thinking of a portfolio that will stand the test of time is more vital, which is what I am aiming to build.
My 2 cents.
Thanks for the reply.