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When is the best time to invest in gold?

In the third of our Six Keys to Successful Gold Ownership, we tell why the best time to buy gold is when you have come to the conclusion that you need it.

Panics, manias, crashes and collapses are as common to financial history as thunderstorms to placid summer afternoons. They tend to show up suddenly, wreak more than their fair share of havoc, and recede into the history books only after endless discussion as to their causes and cures. Whether brought on by popular delusion, unscrupulous market operators, misguided governments and/or central banks or some random, unforeseen shock, black swan events are part and parcel of the human experience and are just as permanent a fixture in our collective history as wars and natural disasters.

Almost two thousand years ago, Seneca, the Roman stoic philosopher, admonished his fellow citizens about their complacency: “You say: ‘I did not think it would happen.’ Do you think there is anything that will not happen, when you know that it is possible to happen, when you see that it has already happened?” These are not the thoughts of a pessimist, but a realist. When it comes to times of financial stress, market breakdown and general societal upheaval, the fact of the matter is that we do not know when the worst of the ill effects will take hold, therefore it is impossible to fully prepare for it.

In the end, gold is not an investment at all, though we commonly refer to it as such, but a form of wealth insurance. The time to buy it is when you come to the realization that you need it. The following chart study is a record of how gold has done so far in protecting and building wealth in the fiat money era. It also serves – we think you will agree – as an effective argument for owning it in the future.

Chart 1: Gold’s price performance since 2000

bar chart showing gold's annual returns from 2001 to 2018

This chart above shows the annual returns on gold during its secular bull market which began in 2002. A $100,000 investment in 2001 would be worth nearly $500,000 today. Though the overall returns have been significant, more importantly, gold owners managed to preserve their wealth during some tumultuous times. The three down and flat years of 2013 through 2015 followed eleven consecutive years of positive returns. Over the past two years, gold has returned to form, registering a 7.8% gain in 2016 and nearly a 12% gain in 2017.

Chart 2: Gold’s average annual price since 1971

bar chart showing gold's average annual price 1970 to 2018

At USAGOLD we have always emphasized gold’s long-term, safe-haven attributes. The mainstream media often characterize gold as a volatile investment – so volatile, they say, that ordinary investors should avoid it. To the contrary, this chart demonstrates gold’s long-term stability from year to year along with its potential as a vehicle for long-term asset preservation. “The average annual price,” says Austria’s Incrementum AG, “shows the benefit of a regular accumulation plan as a long-term strategy.”

Chart 3: Gold’s real rate of return since 2000

Bar chart showing gold's real rate of return since 2000,

This chart illustrates the solid real rate of return gold has delivered against goods and services in twelve of the past sixteen years. In seven of those years, gold’s appreciation significantly outstripped the inflation rate. With gold currently trading at cyclical lows, you can now combine hedging the worst-case scenario with the extra advantage of securing an asset that is generally viewed as undervalued.

Chart 4: Gold’s relationship to the U.S. federal debt

Overlay area chart showing gold's positive correlation with the rising national debt

We should keep in mind that the very same conditions which created the long-term secular trend for both the national debt and gold are still in place today – nothing has changed fundamentally. As long as that is the case, we can assume gold will continue to attract capital as a long-term portfolio hedge just as it has done, to varying degrees, through the first 46 years of the fiat money system. Please note, too, that gold is trading below the federal debt’s trend line, an indication that it might have some catching up to do in the months and years ahead.

Chart 5:  Gold vs. the U.S. dollar since 1970

Chart showing gold's negative correlation to the US dollar index

As you can see in this chart, the dollar has been in a long-term downtrend against the major currencies and gold has been in a long-term uptrend. In this context, the dollar can be viewed as enjoying a secular bear market rally at present and gold appears to be suffering a bull market correction. The direct inverse correlation between the U.S. dollar and gold is a matter of much discussion, but few investors are aware of the longer-term trend which unambiguously favors gold ownership as the safe haven of choice.

Chart 6:  Gold and the purchasing power of the U.S. dollar

Overlay area chart showing the negative correlation between the declining purchasing power of the dollar and gold - 1970 to present

This long-term chart shows the direct correlation between debasement of the dollar and appreciation in the price of gold. Whenever a U.S. Secretary of Treasury utters the words “strong dollar policy,” the question immediately should be asked: “Strong against what?” In terms of purchasing power, the dollar is in far worse shape today than it was 21 years ago when then-Treasury Secretary Robert Rubin first uttered those words (and taken thereafter as self-explanatory). In fact, it has lost almost 40% of its purchasing power over the period. Simultaneously, gold has appreciated 333%. Since 1971, the dollar has lost an astonishing 86% of its purchasing power. Gold has appreciated by more than 3000% over the same period. In short, the strong dollar policy is more a carefully orchestrated public relations campaign than a financial reality.

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Disclaimer – Opinions expressed on the website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.