The slow, boring, inevitable death of gold

Overnight, U.S. markets hit yet another record closing high. It didn’t take much, the S&P 500 gaining just 0.2%, but I suspect investors are hardly complaining.

Here in Australia, the ASX has jumped back above 5,000, lead by gold stocks, with Newcrest Mining  (ASX: NCM) and Medusa Mining (ASX: MML) just two of the stocks leading the charge.

Overnight, the gold price jumped nearly 3% to above US$1,300 an ounce.

Yes folks… the one asset that doomsters buy in order to protect them from market crashes and hyper-inflation actually goes up in a bull market and down in a bear market… just like any other asset.

But unlike most other assets, gold doesn’t pay you any dividends, has no economic use, and it’s very heavy.

The slow, boring death of gold

I did have to laugh at this chart from Morgan Stanley Research published in today’s Australian Financial Review.

They titled it as below. To me, it’s a perfect picture of The Slow Boring Inevitable Death Of Gold as an asset class.


Flat Gold


To give the boffins at Morgan Stanley credit, at least they are not trying to create headlines with outlandish and irresponsible headlines of US$2,000/oz or US$500/oz.

No, dear Fools.

Instead, brace yourselves for years of a slowly, boring, declining gold price. It’s about as exciting as watching Ian Bell batting. Life is seriously too short.

In other news…

Bloomberg reports that investors have increasingly turned to stocks this month, as U.S. equity exchange-traded funds are getting money at the fastest rate since September 2008.

Goldman Sachs recently noted investors are demonstrating the “strongest risk appetite in five years.”

That’s saying something when the S&P 500 has already jumped 150% percent from its March 2009 low.

Here in Australia, despite it being more than two decades since the Lucky Country last experienced a recession, our market still languishes a long way its pre-GFC high.

It might feel like a recession… but we’re wealthier, healthier and happier

What have we done wrong here in Australia?


Life is about trade-offs.

We have a much higher standard of living than most of the rest of the world. Over the last 10 years, we’ve become wealthier, healthier, better educated and we now live longer.

We have low unemployment. High minimum wages. Middle class welfare. Decent infrastructure. Nice houses. Good schools and universities. Abundant natural resources.

What we don’t have is a stock market hitting record highs. Or a decent cricket team.

I dunno about you, but I can live with the former.

ASX 10,000

I know, one day, our market will again hit record highs. One day, the ASX will hit 10,000. Nothing could be more certain. It’s just a matter of time.

On the bright side, the longer we wait for the ASX to regain its former highs, the more likely that new record high will come.

Also on the bright side, knowing there’s a new high ahead, sometime in the future, I’d rather be buying shares today than when the market is higher.

Left holding a worthless share certificate? Priceless.

Now I’m the first to realise markets go up, and down.

I do still own my Lynas (ASX: LYC) shares, down over 50% since I bought them.

I have a framed share certificates on my wall of a UK company I once owned — Independent Insurance (LON: RIP) — that went totally bust.

The share certificate is worthless, but the many lessons are priceless.

For all my optimism, I acknowledge there are reasons for concern.

Some are predicting Australia will go into recession. Others, like National Australia Bank (ASX: NAB) chief economist Alan Oster are saying…

I think warning of recession is too much, but there is clearly going to be a pretty significant slowing.”

In many parts of the country, it probably feels like a recession.

Over the past six months, Australia’s growth rate has slowed to an annualised 2.25%, well below any estimate of trend growth. With the population growing by roughly 1.75%, it implies little growth in living standards.

That’s not a recession… this is a recession

As tough as it might feel, old timers like me might like to remind our younger readers what a real recession might feel like.

From a recent article in The Wall Street Journal

“A generation of Australians has grown up not knowing the pain of rising unemployment and widespread business failures. The last time the country underwent a recession was in the early 1990s when interest rates were raised to 18% to head off a credit boom. The country’s jobless rate peaked at 11.2%, more than double the current level.”

Imagine what intertest rates anywhere near 18% would do to our already bloated house prices.

But unlike the early 1990s, we have generational low interest rates, which are likely to go even lower.

The credit boom has been and gone — it was in the years up to 2007.

At 10.5%, our savings rate is running way above where it was just a few years ago.

The Foolish bottom line

If now represents the early years following the GFC — our equivalent of a Great Depression-type market crash — I’d much rather be investing now in strong companies.

I’d be aiming to be invested over the coming decades, rather than be worrying that another, worse crash is coming.

Let me be very clear. For all the doomsters out there, I’m yet to see any of them explain clearly or convincingly why a crash is coming… apart to create headlines or because their glass is always half empty.

I’ll give you a headline — ASX 10,000

Here’s another one — the most successful investors of our day, including Warren Buffett, just keep investing.

There’s not much a headline writer can do with a message that tells others to buy good companies and hold them for 5, 10 years or longer.

The Motley Fool has just celebrated its 20th birthday. Our purpose is simple…

To help the world invest — better

Buy stocks. Buy stocks regularly. Hold them. Collect and reinvest dividends. Sell rarely. Retire happily, and wealthily.

The end.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Of the companies mentioned above, Bruce Jackson has an interest in Lynas.

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