I started this year with a Brokers’ Note for the FM: buy gold. Well, that worked way better than expected.
So this week I am trying something risky that writers of weekly print columns should never do: comment on highly volatile instruments. And in this case it is gold.
It started the year at just over $2,000. From April to August it traded in a range of about $3,220-$3,430. Then it had nine green weeks in a row to the high of $4,400 on October 20.
But then US President Donald Trump fired off another threat of tariffs on China — this time an extra 100% — and gold collapsed. Or did it? Well, falling nearly 8% in two days probably does count as a bit of a collapse, but it held above $4,000 and has bounced about $100 since then.
The case for gold is well known and unchanged. After Russia’s US dollar reserves were confiscated in the wake of its invasion of Ukraine, central banks and national treasuries got worried about holding dollars and started buying gold.
And with Trump bringing geopolitical uncertainty to the table this year, gold has had extra support as a safe haven.
In an ideal portfolio, gold should really only be about 10%
But investors were largely behind the curve. Retail ETF investors in the US and Europe were net sellers and only really started buying earlier this year, helping the price double over the past few months.
The recent sell-off spooked some investors, and I suspect many sold their gold miners — whose share prices have also run hard this year.
I hold gold ETFs on both the JSE and New York Stock Exchange, as well as some local gold miners. I reduced my gold miners in September; the profits, at about 400%, were just too juicy to risk.
But I sold some gold for another reason too. In an ideal portfolio, gold should really only be about 10% and if I included my miners, I was well over that.
But let’s focus on the bigger gold picture. I started in the markets in the 1980s, a few years after gold peaked at $850, and for pretty much my entire investing life gold has been an oddity loved by few.
The past year or two have brought gold into the mainstream. I have interviewed fund managers at large listed asset managers who are holding gold and gold miners for the first time in their careers. Many private investors are now into gold, and central banks are buying like it’s the last investable asset available.
This is mindshare, and it will only grow further.
So the gold run is not over. It will be volatile, but the trend is upwards. The miners are printing cash right now and, assuming they don’t do anything stupid, will continue to do so.
