A quick note from your Editor: Over the past week, you may noticed that Firstlinks website looks a little different. We've done two things. First, we've introduced arrows next to comments. You can now like a comment by pressing on the arrow. The comments with the most arrows ends up at the top of the comments section, and those with the least, down the bottom. This initiative was in response to feedback from readers, who wanted the most helpful comments to be at the top of the comments section.
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The Weekend Edition includes a market update plus Morningstar adds links to two additional articles.
Gold is becoming a hot ticket item. I took this photo outside the ABC Bullion store in Martin Place in Sydney this week:
Source: author
Presumably, these people are there to buy physical gold rather than to sell it!
Is it a boom? Is it a bubble?
I’ve owned gold for 17 years and I didn’t think I’d ever see scenes such as these. I also have friends who’ve never shown interest in gold and who are now buying the metal.
That tells you something.
I thought it would be worthwhile to recount my own journey as a holder of gold – why I bought it, why I’ve held onto it for so long, the mistakes I’ve made along the way, and what I intend to do with it now.
Why I bought gold
In May 2008, the financial world hadn’t blown up though there had been a steady flow of news coming out of the US about subprime lending bankruptcies.
I was concerned enough at the time to put a reasonable amount of my net worth into physical gold coins.
I didn’t do it on a whim. Up to that point, I’d acquired a significant degree of knowledge about the yellow metal. I’d been a resources analyst covering gold companies in Asia and the US. Later, I did freelance writing on gold for some of the world’s largest precious metal publications and websites.
I was also a keen student of history and knew that bad things happen on a regular basis – societal breakdowns, world wars, and plagues – and gold had endured.
You’ll see a lot of things written about gold and I regard most of it as bunkum.
Detractors say it’s just a speculative tool. If that’s the case, why has it lasted so long?
Others say that gold doesn’t earn anything and therefore you can’t value it. Yet, there are a lot of things that don’t earn anything but still have value. And gold has held its value through history. For instance, its value has largely kept pace with inflation in USD terms through US history.
People also point to a host of drivers for gold – that it trades inversely to the USD, that it correlates to US inflation break evens and that it is an inflation hedge. All of these have been proven wrong.
I bought gold for two reasons:
- As a store of value
- As insurance against government stupidity
My view is that gold is principally a store of value. Whereas every major currency has come and gone through time, gold has been the lone survivor.
Also, I consider it a useful hedge against government stupidity. Students of history know that every major superpower over the past 2,000 years has declined because they ended up spending more than they were earning, used excessive debt to finance the spending, and devalued their currency in the process.
Why I held onto it
It’s easy to look back in hindsight and say that I’ve been lucky to have held onto gold for as long as I have. Yet, it hasn’t always been easy.
Through the 2010s, the gold price essentially did nothing.
Gold (AU$/oz)
Source: ABC Bullion
This was a decade when stocks and bonds boomed, and gold badly trailed. Retail and institutional investors had no interest in the metal and mocked anyone who did.
I held onto the coins as a portion of my portfolio because I still regarded gold as a store of value. I also believed that government stupidity hadn’t disappeared. That while the US had saved the financial system in 2008, it also kicked a lot of its problems down the road. The same went for Europe in 2012. The subsequent zero-bound interest rates were lunacy. Then followed Covid-19 and the extraordinary spending that governments did to help economies.
The truth was I also regarded gold as a ‘set and forget’ investment, and I didn’t take much notice of its price through those years.
My attitude changed in mid-2024 as the gold price started moving much higher. I sold a decent chunk of my holdings then. It was partly to reduce the proportion of gold in my portfolio.
What I’m doing now
In coming days, I’m going to be lining up with those people at ABC bullion – to sell gold rather than buy it.
I intend to sell about half of my current holdings. The remainder will be a relatively small amount.
Why am I selling? Because it’s clear to me that gold has gone from being a store of value that few are interested in, to being an instrument for speculation that everyone is interested in.
I’m remaining a holder of gold because I still have a high degree of scepticism about current government spending, especially in the US, which is on an unsustainable path.
Lessons from the investment
My gold investment has yielded an annual return of close to 11% per annum – decent, and better than most alternatives over that period.
It’s taught me many lessons about investing, including:
- It’s important to form your own opinions on investments rather than follow those of others.
- Having solid reasons for an investment helps you hang on for the long haul.
- ‘Setting and forgetting’ is the best way to keep and hold onto an investment.
- Selling is hard. I sold too early, before euphoria really hit. But I’m not going to beat myself up about it.
- When people are lining up to buy and friends are buying, it’s probably time to sell.
While my gold investment has turned out favourably, some other investments haven't gone as well, and I've documented many of those in Firstlinks previously.
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In my article this week, I look at the fallout from Jim Chalmers' super tax backdown. I get the views of six experts - what they think of the changes, what still needs to clarified, and how the new tax will affect you.
James Gruber
Also in this week's edition...
Did you know that in any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods? The datapoint comes from Romano Sala Tenna's update on four charts that every adviser and investor should see. It really is a must-read.
You can’t freely withdraw your super before 65 as there are certain conditions that must be met. Julie Steed outlines the conditions and answers other questions that she commonly gets.
Navigating retirement concessions is ludicrously complex. Different states have different concessions and then you have to plough through numerous government and non-government websites to find the concessions that apply to you. Brendan Ryan gets the frustration with it and is undertaking a new project to help older Australians find what they’re entitled to.
Investing is full of surprises - both rewarding and unsettling. Dexus' Mark Mazzarella explores practical strategies to stay calm during market shocks and manage risks during rallies, focusing on long-term, REIT investment management.
Often underestimated, bonds are a versatile and vital part of portfolios, delivering income, diversification and risk management. Eric Souders of Payden & Rygel explains fixed income’s breadth, market dynamics and its role across varying economic environments.
Currently, consultants are in the naughty corner. The NSW government is reducing their reliance on them. Universities have also been criticized for relying on consultants as cover for restructuring plans. But are consultants really the problem they're made out to be? Mark Humphery-Jenner weighs up the arguments.
Two extra articles from Morningstar this weekend. Nathan Zaia gives his assessment of ANZ's strategic plan, while Johannes Faul questions GYG's strange buyback announcement.
Lastly, in this week's whitepaper, First Sentier looks at increasing merger and acquisition deals in global infrastructure.
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Weekend market update
Stocks in the US caught a 0.5% bid on the S&P 500 to wrap up a topsy-turvy week slightly higher, while Treasurys saw some bear flattening with two-year yields rising five basis points to 3.46% and the long bond ticking to 4.6% from 4.58% Thursday. WTI crude remained stuck at US$57 a barrel, gold finally pulled back 1% to US$4,246 per ounce, bitcoin edged lower at US$107,000 and the VIX slipped below 21.
From AAP:
Australia's share market on Friday failed to hang on to record-breaking gains after worries about US financial stability and an ongoing trade stoush sent investors towards safe havens. The S&P/ASX200 fell 0.81% to 8,995.3.
The heavyweight financials sector dragged on the bourse, dropping 1.2% after two US regional banks posted heavy loan-related drawdowns, fanning fears of a repeat of the 2023 regional banking crisis.
While Australia's banks were unlikely to have direct exposure to such loans, Commonwealth Bank was the only big four player to edge higher, eking a 0.1% lift as ANZ, NAB and Westpac lost between 0.5% and 0.8%.
The broader sector was a sea of red, with major insurers QBE (-9.1%), IAG (-6.2%) and Suncorp (-4.3%) selling off.
Energy stocks were hammered as oil prices plumbed five-month lows, with US-China trade tensions dragging on against a backdrop of oversupply from OPEC+ and planned talks to end the war in Ukraine.
Raw materials stocks managed to edge higher for a fourth straight record close as goldminers, Rio Tinto and Fortescue helped counterbalance weakness and profit-taking in other commodities.
Gold hit a fresh peak before the ASX open to trade at $US4,379 an ounce, buoyed by safe-haven inflows and narrowing bets on incoming US interest rate cuts.
Rare earths producers such as Iluka Resources and Lynas Rare Earths sold off after rallying most of the week on the back of China's flagged export controls, but pared most of their losses by the close.
Consumer staples outperformed the broader market with a modest 0.3% lift, with Woolies and Treasury Wines shining.
Australia's tech sector continued to sell off, slipping 1.9% on Friday and down almost 5% in October, tracking with an uncharacteristic pullback on Wall Street's tech-heavy Nasdaq index in recent days.
From Shane Oliver, AMP:
Global shares were mixed over the past week with US and European shares recovering some of their sharp falls in the prior week but continuing to be whipsawed by the US/China trade war. US shares were also hit by worries about credit problems at some banks but got a boost on Friday as Trump sought to sooth trade fears by expressing optimism about a trade deal with China and so rose 1.7% for the week. Eurozone shares were helped by some signs of stabilisation in the French government and rose 0.9% for the week. Japanese shares fell 1.1% though on the back of renewed political uncertainty and Chinese shares also fell 2.2%. Australian shares rose to a new record high helped by renewed expectations for RBA rate cuts but gave up some of their gains on Friday to still leave the market 0.4% ahead. Gains for the week were led by materials, property and health stocks. Bond yields fell reflecting safe haven demand and increased expectations for rate cuts.
Gold continued its surge making it above $US4,300, with silver also reaching a record high, on safe haven demand in the face of the ongoing US/China tensions and against a backdrop of falling global interest rates, the downtrend in the US dollar and worries that high public debt levels could lead to governments tolerating higher inflation and debasing their currencies along with a bit of FOMO now creeping in. By contrast Bitcoin fell further partly reflecting “risk off” sentiment, highlighting that it’s become increasingly correlated with shares in a high beta fashion as it’s become increasingly institutionalised. Metal prices managed a small rise, but iron ore prices fell slightly, and the oil price continued to slump. Trade war fears and an increase in RBA rate cut expectations saw the $A remain below $US0.65, despite a fall in the $US.
Loan problems at two US regional banks may be a sign of wider problems about credit worthiness in the US, with credit spreads being very narrow indicating a degree of vulnerability – but at this stage look to be an isolated issue rather than systemic problems as both banks made loans to the same borrower and allegations of fraud are involved. So regional banks shares rebounded after a brief fall.
A bigger source of uncertainty is the re-escalation in the US-China “trade war”, including more US pressure on other countries like Australia to “decouple” from China - but its likely part of both sides just positioning ahead of talks.
Curated by James Gruber and Leisa Bell
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