Making sense of the markets this week: August 3
Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.
Gold outshines itself
Gold stole the headlines this week. That can happen when an infamous asset takes out its previous all-time highs.
Last Sunday, gold made another push and hit its all-time high above $1,920. By Friday, July 31, the price had moved above $1,990. (Gold is priced in USD.)
Gold is gaining based on general uncertainties in these, well, uncertain times. There is also the fear of inflation. Many investors also point to the prolific money printing from central banks and the ballooning deficits and deficits. In this MoneySense post, I touched on Canada’s pending $1-trillion debt, and the similarly large number representing proposed stimulus in the U.S.
MoneySense contributor Bryan Borzykowski recently pondered whether it’s time to buy gold again:
“A lot of people are excited about gold today because of how much debt countries around the world are accumulating. The more leverage these countries take on, the more concern there is about currency devaluation, while gold remains worth what it’s worth.”
Portfolio managers who are fans of gold will suggest a 5% to 10% portfolio weighting. As Bryan suggested in his article, if gold gains are modest, that kind of allocation won’t give you much of an overall bump.
That said, we might remember that gold increased almost tenfold during the period of stagflation of the 1970s and early 80s. During the Great Depression, the price of gold more than doubled in value in the early years of the stock market crash from 1929. In modern times, from 2000 and moving through the dot-com bust, the financial crisis and the recent pandemic crisis, gold has been one of the best performing assets. (A good source for gold performance charts is macrotrends.com.)