I was never a believer in gold. It peaked in the early 1980s and then spent the next two decades trending lower. In hindsight, the bottom for gold was the auctioning off of large parts of the stockpile by the Bank of England. It sold about 400t at under $300 between 1999 and 2002.
But even back then, my retort to the gold bulls was that I only bought a gold stock when closing a short trade.
I continued to ignore the metal until inflation reared its head during the pandemic. I wasn’t sure about the transitory nature of the inflation, and gold was looking good, so I bought gold ETFs and miners with the metal at around $1,800, adding more when it broke $2,000, and more recently just below $2,900.
Now it’s well above $3,000, and Goldman Sachs says it “could plausibly” trade around $4,500 by the end of the year.
The worry now for many investors is whether they have missed the run. So, here’s what I do when I’ve missed a strong upward trend.
First, many strong trends last far longer than most expect, running for many years.
But the trick is to look for reasons to still buy rather than looking for reasons not to buy. Focus on the bull case — has that story changed? The price will go where it wants, or rather, where the market drives it. But, ultimately, the underlying fundamentals are what will be the key driver.
With gold, there is a lot to suggest that it’s more likely to go higher rather than lower.
With gold, there is a lot to suggest that it’s more likely to go higher rather than lower
Central bank buying is only likely to increase as trade wars hot up and move into the US bond market. Less bond buying and more gold buying is the likely outcome.
We also have the risk of inflation coming back. Not as bad as the pandemic levels, but above central bank targets; this is also positive for gold.
Add to this the highest levels of uncertainty for markets in decades — more good news for gold.
The point is that the bull case is as strong as ever. Sure, we may have seen the top in gold. But equally, it can go higher and so it may not be too late, especially if we see a strong pullback.
I would also again point to the Goldman Sachs “could plausibly” statement. Yes, it’s bullish, but it’s also cautious, as nobody ever knows where something is going.
The key point is, when you’re worried you’ve missed the bus, remember that trends carry on for longer than expected. Go back to basics; ignoring the recent rally, is there still a bull case? Don’t look for reasons to avoid; there are always lots of negative viewpoints. Focus on that bull case and if you think it’s still strong, you’re good to go.
This, of course, works for other assets, and I’ve used it well, having missed the initial enormous Nvidia run.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.