Why Hasn’t Gold Gone “To The MOOOON”?
By Jerry Fetta
We are seeing massive demand in the gold markets lately!
Consumers are buying more gold.
Central Banks are buying more gold than they have in decades.
State governments are beginning to load up on gold.
Even pension funds are buying gold.
AND we are producing less gold than the demand has increased by.
So why hasn’t it “gone to the MOOOON”?
First, because gold doesn’t work that way. Because it has intrinsic value and there are so many ounces out there in existence, it isn’t subject to the whims of market volatility. It’s kind of like dropping a stone in a puddle versus the ocean. The puddle will have lots of waves and change as a result because it is smaller and more shallow. The ocean doesn’t hardly have a ripple because it is so vast.
Second, gold has more lag in response than other assets often do. The reaction of gold to market conditions isn’t instant and never has been. Why? Because it’s physical and it takes time to travel from point A to point B. Buying and selling isn’t as quick and those who store value in gold don’t have trigger finger like those who own paper and digital assets often do.
But the big answer lies in the difference between spot price and physical price.
COMEX (Commodities Exchange, Inc.) where gold futures contracts are traded) and the other Bullion Market Makers and regulators refuse to differentiate between spot price (which isn’t gold it’s paper and digits that represent gold…nobody buys physical for spot) and physical wholesale/retail (as you may know there is always a premium to buy which is the reality of purchasing physical).
In 2019 my wholesale premium on 1 oz of silver was $0.45 over spot…no joke!
Now it is $2.50 per oz over spot, easily.
The fact that physical silver now trades at spot + $2.50 wholesale instead of spot +$0.45 should be taken into consideration, but that would illegitimize COMEX and their pricing model, which is all too fitting as they can’t actually deliver the product they trade anyways. They facilitate more trades than there is gold to back those trades.
There are other factors too, but this is a big one!
But owning gold stores value regardless of price!
The U.S. Federal Reserve Bank owns more than 250 million oz of Gold (or some astronomical number close to that) and they have it statutorily priced on their books at $44/oz (and have held it as that price since the 1970s) which says they couldn’t care less what the price is.
If I own land as a store of value, I don’t care what other people think it’s worth. It’s mine and it’s serving my purpose and I know it is scarce and valuable regardless of price.
If I own commodities such as wheat, oil, corn, etc. as a store of value, I don’t care what other people think it’s worth. It’s mine and it’s serving my purpose and I know it is scarce and valuable regardless of price.
Now, with that being said, in 2020, gold had 20% annual returns. Historically it has done 8–10% per year since the 1970s with upward or downward volatility range of about 15%. Which means we could expect anything from -7% to +25% to be within its trading range.
20% is in that range.
In the last 5 years is has averaged about 9% per year, which is normal within its trading range.
In the last 12 months gold has done around -4%, which is normal within its trading range.
I don’t own gold because it’s going to the moon in the next 6 months.
I own gold because it will store my value over long periods of time (5 years should be your minimum time horizon) and it has done that where literally every other form of money has failed for about 6,000 years. Gold is the only one that has stood the test of time.
So buy gold to own the most successful REAL store of value there has ever been on this planet and expect that over the long term you may see 8–10% annualized returns where some years you lose as much as 7% and some years you gain as much as 25%. And once in a while you’ll see a maximum draw-down of 32% (the most gold has ever lost in a single year since it was legal for us to own again).
It all comes with the territory and can be expected.
Lease it out and borrow against it.
But don’t sell it or trade it and decades from now you will thank yourself.
To learn more about owning Gold and other precious metals, enroll in my free Bullion Course by clicking here!
To Purpose, Wealth, and Freedom.
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)