Stewart Lawson, Vice President of Marketing for Certified Gold Exchange, a precious metals trading platform read and replied to my article “Limit Your Investment In Gold and Silver To Less Than 3% of your Portfolio.” In his “public refutation” he wrote:
The article says that gold has low expected returns, when in reality gold has averaged 6.9 percent per year since 2001, and before the recent sell-off gold averaged double-digit gains each year for the last 12 years.
I expanded my analysis of gold in “The Optimum Asset Allocation to Gold Is Always Zero” in which I wrote:
In January 1980, gold reached a high of $850 an ounce ($2,399 in today’s dollars). For the next 21 years the price of gold dropped to a low of $256, losing over 70% of its value.
Gold advocates may cherry pick gold’s returns from trough to peak, but portfolio analysis requires looking at long term averages. As I wrote in my reply:
Gold’s volatility means it has both positive and negative runs. Gold advocates try to make their case based on the positive returns from the bottom of the gold market in 2001 until recently. They ignore the 21 years of decline in favor of the recent 12 years of growth.