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For AMG Gold Commentary

Aug 14, 2020

About Gold

author avatar

Lori Gann Morris, CIMA®, AIF®, CeFT®, Co-Founder / Managing Partner

 

There are generally three “reasons” given when an investor wishes to buy gold: 1) It’s a hedge against inflation, 2) It’s a hedge against chaos, 3) It’s a play on a weaker dollar. A few thoughts on the validity of each….

Invalid Reason to Consider Gold Now: Inflation Hedge

Gold has not been a good inflation hedge. To illustrate this point here’s a chart of the Consumer Price Index (CPI), Gold, and the S&P 500 returns since 1980. Our official measure of inflation (CPI) has risen 231% since 1980. The S&P 500 has gained an astounding 2,600%. Gold is up 187%, underperforming both statistical inflation, and the S&P 500. Stocks (or real estate) have been better alternatives as an inflation hedge.

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Invalid Reason to Consider Gold Now: Chaos Hedge

Another reason we hear investors buying gold is a hedge against uncertainty. We understand that feeling of safety that gold provides. However, the 2020 rally in gold is not due to coronavirus or U.S./China geopolitical tensions. Instead, it can be attributed to the falling dollar. More broadly, buying and storing physical gold is inefficient and the transaction costs can be exorbitant. Additionally, the likelihood that society breaks down to the point where we need gold bars to pay for goods & services is very, very unlikely.

Valid Reason to Consider Gold Now: Falling Dollar

We all know that gold is a nice portfolio diversifier over the longer term, but that’s not the spirit in which many investors are buying gold today. Instead, they are buying it for profit (i.e. they think the spot price will keep going up). If that’s the objective, then the first question an investor should ask is whether they think the dollar will keep falling, because if the answer isn’t “yes” then gains in gold are likely to be generally underwhelming, and you will take on a lot of volatility for those gains.

Bottom Line

Talk of gold as a part of an investment portfolio is commonplace during times of political and economic uncertainty. However, it’s important to keep long-term goals in mind and make efforts to “tune out the noise”. Historically, stocks broadly outperform gold as an inflation hedge. Buying gold as a way to book short term profits does have merit, but this is a trading strategy and you would need to be supremely confident of further declines in the dollar. For the vast majority of investors with a goals-based financial plan, holding gold is not worth the additional risk and potential for long-term underperformance, when compared to equities.

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Disclosures

Securities offered through Calton & Associates, Inc. Member FINRA/SIPC. Advisory services offered through of Waterloo Capital LP d/b/a AMG Wealth Advisors, an SEC-registered investment advisor. Calton and Waterloo Capital, LP are separate unrelated entities. For more information about Waterloo, or to receive a copy of our disclosure Form ADV, Form CRS and Privacy Policy call 800.266.1723 or visit adviserinfo.sec.gov/Firm/133705.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or to advise on the use or suitability of The AMG Managed Portfolio Series, or any of the underlying securities in isolation. Information specific to the underlying securities making up the portfolios can be found in the Funds’ prospectuses. Please carefully read the prospectus before making an investment decision.

This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this article should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy.

Investing involves risk. Principal loss is possible. Investing in ETFs is subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of the shares may trade at a discount to its net asset value(“NAV), an active secondary market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. Shares of any ETF are bought and sold at Market Price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Market returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Diversification is not a guarantee of performance and may not protect against loss of investment principal.