hi I'm Jimmy so since the start of 2020 the stock market is down a bit more than
25 percent and meanwhile gold is up slightly more than 5 percent over the
very same time period this means that if we invested in both stocks and gold
starting at the end of last year or the beginning of this year well that
would mean that we would be doing better today thanks to our gold investments now
our question is do we think gold will continue to move higher let's say over
the next year or two and what does history show us sure there hasn't been
anything quite like this 10 Demick but there have been other stock market
crashes that we can go back and analyze to see how long gold continued to run
for since let's say the bottom of the crash after all gold is known to be a
fairly reliable hedge for stock market crashes but what about post crash ok now
Before we jump in and look at the history gold let's look quickly at some
things that have happened more recently that have sunk cost a fair amount of
volatility in the price of gold so we can see that the sp500 peaks right about
there there the blue lines and the gold took a nosedive shortly after the SP
started falling and obviously it's tough to tell what exactly caused something to
fall but overall from what I've gathered there were at least some infest in some
investors who did in fact invest in both stocks and in gold when they got in is
somewhat irrelevant but either way as stocks started to fall well many
investors needed cash maybe they got margin calls or they just needed to
raise additional cash or whatever the situation was either way many investors
were forced to sell their gold investments to raise additional cash and
just like that we see a huge drop in gold in a fairly
quick manner now gold does remain one of the more reliable safety nets out there
and gold gives off the perception of being a very safe investment
so once the price drops many investors turrent and they jump right back in once
again driving the price higher and we can see that what we end up with is a
fairly volatile market at least in Gold Market we know the stock market's
been very volatile as well now this volatility is obvious it's more obvious
when we're zoomed in like this but I think that if we were to take a bigger
picture look at the gold market well we might come away with some what are some
of the underlying influences of the price of gold and then perhaps we can
ignore some of the short-term volatility when we stick with the big picture and I
think that makes the most sense as long-term investors so now when we look
at this gold chart this one goes all the way back to 2004 well now we can see
that whether on this time period as when the Great Recession happened and we
might also be interested to note that during that time period we can see even
when were this zoomed out that there was a fair amount of volatility in the gold
market we could see there was a dip while the stock Munk market was crashing
there was in fact they dip in the price of gold and knowing what we know about
investors at least sometimes selling their gold investments to cover any
margin calls or cover any expenses or simply to take profits well we know that
selling the selling of the gold can increase the volatility of the gold at
least over the short term making the price low to look a bit all over the
place at least during the crisis itself that's the way this seems to happen that
was true both back in the Great Recession and in the current stock
market but when we look at what happened to the price of gold in the years that
followed the Great Recession well we can see that was a serious move higher and
if we think about this at this fundamental move higher it's actually
quite logical when we think about some of the underlying factors that drive the
price of gold either higher or lower so we know even based on just what we've
seen so far that ultimately it will be supply and demand that will drive the
price of gold but when I say supply demand I think that it's important that
we recognize that we're talking about the supply demand from an investing
standpoint since there's very little functional use for gold sure there's
jewelry and there's some there's some use of gold in electronics but there's
nowhere near the functional use of something like copper or iron ore yet
the value of gold remains quite high thanks to supply and demand on investors
side now enough factor that influences the value of gold
is interest rates so just illustrate real quick this red line this is a chart
of the Fed Funds rate over the very same time period and as we could see as
interest rates went lower while gold went higher and as they stayed low while
gold stayed high but now you may be asking the very same question that I
asked if this is true then why did gold begin to fall as interest rates stayed
at zero and for that there's actually a couple of answers first clearly this
isn't a perfect relationship but while broadly speaking yes this appears to be
true it's actually the wrong relationship to be looking at directly
the way it actually works is that lower interest rates should lead to a lower
dollar and a lower dollar leads to a higher price of gold and this logically
could make sense since gold is often denominated in u.s. dollars
so as the US dollar Falls gold becomes more valuable around the world so in
theory when we overlay the US dollar what end for the US dollar I'm using D X
Y DX Y is US dollar based index it's the dollar versus a few other world leading
currencies either way when we can see that when gold prices fell well the
dollar was rising when the dollar was weakening while gold was doing better
now clearly when we look at just the past couple of years well the dollar has
done a bit better and gold has moved a bit higher and I think this brings us
back to the supply and demand side of investing in general as investors have
grown more wary of a possible crash in the stock market well more people I
believe have hedged their portfolio with gold and broadly speaking as in broadly
speaking gold has moved higher because you've gotten more investors in it
despite the fact that we've seen a slightly stronger dollar now before we
clean this up a bit what do we think is going to happen now well the reason I
brought up the interest rate side of this whole equation is that there one of
the key drivers to the value of the dollar hence the reason we saw that
there was some relationship between gold and interest rates sure
the dollar is sort of the middleman in between there but now who
interest rates from this chart and now we're left with just the dollar and gold
and there are lots of factors affecting the US dollar in general there are other
currencies and other interest rates in those countries but when we look at just
the price of gold well once again we can consider that from the Great Recession
from the bottom of the Great Recession gold one on a multi-year run and we know
that that's at least partially do that to the fact that interest rates were
quite low for a long time after the Great Recession well now our question is
do we think this will happen again and personally I'm inclined to think that
this will happen again I don't think that the Fed is going to turn around and
change the course of interest rates any time soon unemployment is going to spike
and we know that the we also know that the Fed is out there printing money
these are all indicators that should point to a higher price for gold now
over the long run we know that that could be true how high will it go I
don't know maybe it gets to the old high of the Great Recession of the post Great
Recession now personally I do think that gold has a strong likelihood of moving
higher over the next couple years now if we're looking for other ways to hedge
our portfolio I actually did a video back in 2018 where I talked about how to
hedge a portfolio sure it's been a while since I first published that video but
fundamentally it's just as true today as it was back then so if you're curious
that could be a good next video for you to watch there's a link right here
there's a link in the description below and I want to thank you so much for
stick with me all the way into the video I really appreciate it thank you I'll
see you in the next video