As of August 24, gold bullion1 has gained 27.13% YTD and 39.74% YOY. Gold mining equities (SGDM)2 are up 38.85% YTD and 61.54% YOY. This compares to 7.55% YTD and 11.96% YOY returns for the S&P 500 TR Index.3 Silver has posted outsized gains, climbing 49.03% YTD and 50.00% YOY.
Gold is a Mandatory Portfolio Asset
Now that gold has powered over $2,000, it's an excellent time to take stock of what has been accomplished by the monetary metal and what may lie next.
Most importantly, in our view, it has been established as a baseline that a diversified asset portfolio must include an allocation to gold. We believe this statement is justified by the fact that gold is now the only monetary asset that is priced by a liquid-free market and not directly correlated and partially controlled by central bank (i.e., government) policies and market interventions.
Without once again judging the merits of the exceptional monetary debauchery and fiscal stimuli of 2020, and regardless of an investor's views on credit and equity market valuations or prospects for inflation, there is no other liquid asset which accomplishes what gold does in the way of portfolio insurance and purchasing power protection.
High Key Currency
Gold's superior track record as a currency has been demonstrated over 100-, 50-, 20-, 5- and 1-year timeframes. Almost 50 years since de-coupling with the U.S. dollar (USD) and throughout the advances of electronically transmittable fiat currencies, gold has relentlessly retained its luster. While there have been corrections during gold bear markets, most notably versus the USD as it became the chief global collateral asset, gold has savagely outperformed as a store of value.
Over the past 20 years, these five major currencies — U.S. dollar, Euro, Yen, British Pound Sterling, Swiss Franc — have all lost purchasing power value when compared to gold bullion. Over the past 5 years, gold has increased in value relative to these five major currencies — U.S. dollar, Euro, Yen, British Pound Sterling, Swiss Franc. Over the past 20 years, gold has increased in value relative to these five major currencies — U.S. dollar, Euro, Yen, British Pound Sterling, Swiss Franc.