GOLD DOES NOT ALWAYS SHINE
One of the most important jobs of a portfolio manager is determining asset allocation for each client. How much money should go into stocks, how much in bonds, and how much in cash? How much in Canada how much outside of Canda? And more recently, how much in gold?
The resurgence in the price of gold has many of our clients asking us why they don’t have an allocation to gold. The answer lies in the chart below. From its peak around $700 per ounce in 1980, gold provided investors with a zero return over a THIRTY YEAR period. That’s how long it took gold to regain its high-water mark.
Price of Spot Gold from 1980 to 2025
Macrotrends Gold Price Data
Of course, the return for investors was really much worse than zero. From 1980 to 2010 Canada had inflation of 161% according to the Bank of Canada. An asset that cost $700 in 1980, just to keep up with inflation, would have to be worth $1,827 in 2010. During that same 30-year period the S&P 500 rose from 114 to 1,115, gaining 878%. Instead of buying an ounce of gold for $700 and holding it for 30 years with no gain, a $700 investment in the S&P 500 would have been worth $6,846. Even an investment in bonds paying 5% over the 30 years would have been worth $3,025. Investing in gold was, in short, a disaster for three decades.
Gold does not pay interest or dividends. It is a non-productive asset, now mostly held as a hedge against a drop in the U.S. dollar. When it goes up, it can go up a lot, and suddenly. When it goes down, it can plunge and stay down for a very long time.
Our long-term clients know that we do not manage their funds to match any index. We buy securities based on our estimate of their intrinsic value with the hope that those values will compound over time. Sometimes, as now, we will lag indices which include gold. We certainly never chase assets because they are popular. That is a certain road to disaster.
We don’t know what the price of gold will be tomorrow, next month or next year. Neither does anyone else. We are quite sure, however, based on over 100 years of market history, that a basket of high-quality companies will be worth more in the future. That has always been the case, and that is how we invest.
David Baskin
Chairman
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Understanding the Baskin Fixed Income Pool – September 16, 2025
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Defending Big Tech’s AI splurge – September 4, 2025
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