Gold at $1350/oz: The Bargain of The Century!

Gold could deliver high returns in the long run

A cast iron pot filled with gold coins and magical sparkles on a dark eerie spotlit background

This year has been a positive one so far for the price of gold. It has risen by 3.7% and yet the year is still only a matter of a few weeks old. This performance follows gains in 2017 for the precious metal, with its price rising by around 12% last year.

Certainly, the same time period has been a positive one for stock markets across the globe. However, gold could be an even more effective asset to own than many shares in the medium term.

Inflation-proof

While shares are generally a sound means of overcoming the threat of higher inflation, gold has historically been the more popular asset during periods of high inflation. It is seen as a store of wealth by many investors, and this could be a reason for its rise in recent months.

In the US, Donald Trump’s lower tax and higher spending plans could cause economic growth to increase. However, a side effect of a more aggressive fiscal policy could also be a higher rate of inflation. While the Federal Reserve has so far been relatively proactive in terms of raising interest rates in response to the threat of inflation, issues such as time lags and fear of slowing down the rate of economic growth may mean that higher inflation is unavoidable.

In such a scenario the popularity of gold could increase yet further. With it trading 27% lower than its all-time high, there seems to be scope for it to rise significantly in the medium term.

Defensive asset

Gold may also prove popular in the case of a bear market. While the current Bull Run does not yet appear to be running out of steam, history shows that a bull market can quickly turn into a bear market. One piece of major, negative news flow could spark a correction which becomes a bear market. And with stock markets across the globe already trading at record highs, there could be scope for significant falls in future years.

In fact, it could be argued that a bear market is inevitable. No bull market in history has lasted in perpetuity, and in more challenging trading conditions the price of gold could increase. Investors seeking a store of wealth and defensive asset may turn to the precious metal, and this could lead to more gains in future.

Insurance

While the price of gold is not guaranteed to rise given higher inflation or a bear market, history shows that there is a good chance that it will. As such, it could be seen as a form of portfolio ‘insurance’ in case the outlook for share prices comes under pressure.

While it may not be sensible for an investor to hold a large portion of gold or gold miners in their portfolio, holding some could be a sensible move. And with share prices now at record highs, it would be unsurprising for the precious metal to outperform stock markets over the next few years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »