Since the 1970s, gold has returned an average 10% per year, comparable to the S&P 500 average price performance. Over the past 10 to 20 years, gold has also held up, supported by important structural changes in the market, like the economic expansion of emerging markets, increased use of gold as part of foreign reserves by central banks and the rising popularity of gold-backed ETFs.
“But it’s important to note, while the near-term environment for gold is not ideal, there are still good reasons to maintain some exposure, including the diversification benefits,” according to BlackRock. “With the exception of long-dated U.S. bonds, gold continues to be one of the more diversifying asset classes. In most instances of higher volatility, gold provides a hedge against not only equity risk but credit as well. With credit spreads tight (i.e. a sign that bonds are expensive) and U.S. equity valuations still stretched, investors may consider lightening up on their portfolio insurance, but they should not abandon it.”
Tom Lydon’s clients own shares of GLD.