There’s Gold in Them Thar Hills!

The California gold rush of 1849 brought millions of speculators to the Golden State in search of wealth and riches.   A few of these individuals made money but most lost everything.  It appears there is another gold rush occurring today with the returns on gold turning in a stellar 2016.  In addition, silver is also having an epic performance this year.

According to a recent Morningstar report $4.1 billion was invested into precious metal funds last week – the most ever![1]  Investors continue to chase the precious returns for gold and silver.   With gold and silver trades shining this year does it make sense to make these investments a major holding in your portfolio?  The short answer is no.   If you need proof of mutual fund flows, please review the mutual fund flows into technology funds in March of 2000 just before the Nasdaq fell 65%.

Gold is soaring with the yellow metal up over 28% so far in 2016.  The 30-year average annual return for gold has been 1.98%.   A $10,000 investment in gold in 1986 is now worth $18,007.   The five-year average annual return has been a negative 4.27%.[2]

Silver usually plays second fiddle to gold but not this year.   Silver is up 42%.  The five-year average annual return for silver has been a negative 13.5% per year.  A $10,000 investment in silver five years ago is now worth $4,842.  The thirty-year return for silver has been similar to gold with a 2% average annual return.[3]   As a point of reference inflation has averaged 2.6% since 1986.[4]

Why are these investments doing so well?  A big factor is fear.  The world appears to be a little unsettled so when fear and uncertainty are high gold and silver perform well.   As investors focus on the headlines of Brexit, Dallas and the election money continues to pour into these investment categories.   Headline risk is a main driver for the performance of gold and silver this year.

If you still have the gold bug and want to add precious metals to your account, limit your exposure to 3% or 5% of your account balance.   If your investable assets are $1 million, then your allocation to gold or silver can fall in the range of $30,000 to $50,000.

Choose my instruction instead of silver, knowledge rather than choice gold ~ Proverbs 8:10.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  www.parrottwealth.com

July 9, 2016

 

 

 

[1] http://news.morningstar.com/all/market-watch/TDJNMW20160708205/going-for-gold-money-floods-into-precious-metals-like-never-before.aspx, Sara Sjolin, Marketwatch, 7/8/2016.

[2] http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart, accessed July 7, 2016.

[3] http://www.macrotrends.net/1470/historical-silver-prices-100-year-chart, accessed July 8, 2016.

[4] US Inflation: Changes in US CPI Index 1926 – 2015, Dimensional Fund Advisors Matrix Book 2016.

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