This blog's content was taken from episode 277, "3 Ways to Add Gold to Your Portfolio"

You can go check out the whole episode here:

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With inflation rising, it seems as if gold has been getting more attention in recent years. Taking a look at gold over the years there is a lot of history behind it. 

The Historical returns of gold vs. the S&P 500:

- 100 years: S&P 500 and the Dow Jones have both massively outperformed gold. The S&P 500 is up more than 47,000% while gold is only up 9,500%. 

      • This excludes dividends so the total returns would be even more significant if you re-invested the dividends during that period of time. I did not include total returns because the data isn’t as accurate prior to 1977.

- 50 years: The S&P 500 is up 3,700% while gold is up 1,800%. For this one, I was able to use the total returns

- 30 years: The S&P 500 is up 820% while gold is up 450%. I also used total returns for this one

- 20 years: It’s extremely close during that period of time. Gold is up 390% while the S&P 500 is up 430% (total returns)

- 10 years: Gold is up around 40% whereas the S&P 500 is up 182%

Why would I ever buy gold based on the above information?

  1. Disregard the 100 year period because it’s not realistic. Sure it gives historical context but for most people they aren’t holding assets for that long even if they are long term investors
  2. Gold has outperformed inflation
  3. Gold has outperformed the S&P 500 during some 10 years or 20 years periods. The data I provided is interesting but it’s an arbitrary point in time. I’m using today going back 10, 20, 30, 50 and 100 years. The returns are going to somewhat change if I change the start and end point.
  4. I was recently listening to a podcast that had Bob Elliot as a guest. Bob used to be a senior investment executive at Bridgewater and was working with Ray Dalio. One point that Bob mentioned is that investors have to be careful with recency bias. Because what worked in the last couple of decades may not going forward because of different macro economic forces that we are facing. 

A few reasons why investors own gold:

  • History of holding its value
  • Provides a hedge to fiat currencies (USD)
  • Inflation hedge
  • Geopolitical uncertainty and increasing central bank demand
    • Central banks have purchased a record level of gold so far in 2023 according to the World Gold Council
  • Diversification 

There’s a few different ways to get exposure and some drawbacks from it: 

  1. Buying a physically backed gold ETF like SPDR® Gold Shares (GLD) or Sprott Physical Gold Trust (PHYS)
    • One of the biggest benefits here is that this approach is very liquid
    • It follows the price of gold
    • There MER is about 0.40%
    • Be careful with leveraged gold ETF
  2. Buying physical gold directly from the Canadian Mint or Canadian Banks
    • If you buy it from a bank, you can get the gold stored for you in a vault at the Canadian mint. The canadian mint won’t do that directly with individuals
    • You’ll pay a premium vs. the spot price
    • Be careful buying it somewhere else because purity can come into question
    • Unlike ETFs or even mining stocks, it’s not going to be as liquid
    • The biggest advantage here is that you can physically have the gold in your position if you want to
  3. Buying a mining or streaming company like Newmont (NMT), Barrick Gold (ABX.TO) or Franco-Nevada (FNV.TO)
    • Can provide exposure to other metals
    • For miners, capital extensive which means earnings can vary quite a bit depending on the price
    • Like the ETF, it’s very liquid
    • You’ll be able to get dividend income from holding these stocks which won’t be the case with the previous two