| You may have seen the recent headlines proclaiming a World Gold Council study showing that gold has outperformed stocks and every other major asset class in this century.
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| Our friends at Monetary Metals have done a great job of spreading the word on this, especially through an insightful piece written by their editor, Mike Maharrey.
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| As Mike notes, the “Dow Jones Commodity Index Gold (DJCI) tracks the gold market using the futures index. Dating back to the turn of the century, the DJCI has produced a 7.8 percent annualized return, according to S&P Dow Jones Indices head of commodities Brian Luke. That compares to a 7 percent return for the S&P500 over the same period.”
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| This statistic isn’t surprising to gold bugs, but it absolutely gob smacks the mainstream investing crowd when it’s put in front of them. I’ve often quoted it on social media as a rebuttal to many an anti-gold keyboard warrior’s rant.
But then I quickly make one concession...
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| This Statistic Doesn’t Mean A Thing
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| Cherry picking any particular time frame to imply one asset’s superiority over another is a mug’s game and, even worse, misleading.
As I’ve often paraphrased from my longtime friend and New Orleans Conference MC Gary Alexander,
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| “I can prove any trend,
If you allow me to pick
The beginning and the end.”
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| Thus, if our chosen time frame of the 21st century is moved up a bit, say from 2010 on, then other asset classes will likely outperform gold. Similarly, if we move the beginning back just a bit into 1999, then gold will absolutely trounce everything else.
So what’s the lesson? Two things...
First, as I’ve just noted, selectively choosing a time frame to prove outperformance is a foolish endeavor and a tool of amateurish rhetoric. Any conclusion can easily and just as credibly be disproven by simply shifting the time scale.
Second, in this day and age, in which every asset class is being driven by central bank liquidity, such comparisons are even more pointless. Everything moves in the same direction based on forecasts of monetary policy.
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| If every asset class is locked in step, then why buy gold?
Because this utter reliance on central bank liquidity reflects a decades-long trend of ever-easier monetary policy, one that is entering an end game with frightening consequences for most asset classes.
That trend not only encouraged a reliance on ever-easier money, but also the accumulation of debts at ever lower interest rates. The current levels of debt essentially preclude anything near interest rate levels deemed typical for all of human history.
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| In short, real interest rates — rates adjusted for inflation — must remain negative going forward, or the entire house of cards comes tumbling down.
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| As the investing and saving public continues to realize this, portfolios will become increasingly allocated toward gold. And given how relatively small the gold market is in comparison with global flows, the gold price is destined to soar to levels that seem fantastic today.
Right now, gold is falling back from its recent all-time record high, and gold bug spirits remain dampened. But I’m here to tell you to trust this trend, as things are set to accelerate soon.
The Fed has already admitted it will start to cut rates. That process will lift the gold price, and all we have to do now is ride out the waves of emotion as the markets figure out not whether the Fed is going to cut, but how much and how soon.
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| Brien Lundin
Publisher, Gold Newsletter
CEO, the New Orleans Investment Conference
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