Strategy To Achieve Additional Yields With Gold
Strategy To Achieve Additional Yields With Gold
Gold is money. Everything else is credit
All portfolios in the world should have gold. Those portfolios that do not have gold do not understand economics, finance, and how money originated.
"Over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock." - Ray Dalio
Many people try to explain through the following graph that investing in gold does not make sense since equities are much more profitable in the long run than this asset.
According to this chart, it makes no sense to buy gold if we are going to live 220 years. Perhaps, that statement might make sense. But what if I told you that we are going to invest for the next 50 years? Maybe at that point, this chart would not make any kind of sense, and you would start to change your mind or not.
In fact, if we go back to the previous graph, bonds and bills are excellent alternatives for investing as well. At the same time, we all know that their yield today is, at best, 0%.
From 1802 until now, the greatest advances in the history of mankind have taken place. Advances that have undoubtedly improved our quality of life and, most importantly, increased our life expectancy.
This has caused the world's population to multiply its capacity several times over. In the last 200 years, we have gone from 1B people globally to more than 7B.
Undoubtedly, if there is one factor that defines the growth of a country and/or a stock market, it is population growth. A higher birth rate growth means that everyone who comes after it will have a possible pension. Not only that, but people will "fight" each other for better jobs, which will undoubtedly lead to social progress.
⬆ People ⬆️ Stock Market
⬇ People ⬇️ Stock Market
This concept is very important and can make us understand why markets have performed so well over the last 200 years. In fact, we see that from 1700 to 1800, the population increased by 40%. However, from 1800 to 2000, 700%.
The year that changed everything.
"Gold is money. Everything else is credit" - J.P. Morgan, 1912
What does all this have to do with having gold in your portfolio? A lot. On the one hand, we want to explain why the stock market has performed so well over the last 200 years against an asset like gold.
People who have their 100% in equities because they make a reductio ad absurdum to this statement, but, as we said before, they do not know how money works.
In 1971, the course of history changed. On the one hand, the birth rate had reached its peak a few years earlier (the famous baby boom of the 1960s). On the other hand, Richard Nixon cut the Dollar-Gold parity or the famous so-called gold standard.
That change allowed the US government to print as much money as it wanted. This measure made it much easier to play with the markets. If we Zoom In (1971-2022) to the first chart, we can observe two things:
Gold stops giving a yield very close to 0% to start growing.
The dollar begins to lose its value. The parity of a dollar is lost, and its value decreases to $0.05.
Interesting, isn't it? The next graph is much more interesting.
As we can see, gold since 1970 has given higher returns than the stock market (red and blue lines). This is mainly due to the year in which everything changed, 1971.
⬆️ M2 Liquidity ⬆️ Gold Price
⬇ M2 Liquidity ⬇️ Gold Price.
In fact, for many eras, gold has performed infinitely better than the stock market. When? Starting in the years when more money has been printed (2000, 2008, 2020?).
Stock Market vs. Gold next 50 years
This is perhaps one of the questions we should be asking ourselves the most. What will happen to gold in the next 50 years? The time period that, if we are lucky, we want to go through.
It is most likely that the birth rate will remain at very low levels or even continue to decline. This will have several consequences:
Less progress: as we have said before, progress and growth is closely linked to population growth. Those markets that increase their life expectancy at the same time as the number of people increases are those that have greater possibilities of prospering.
Aging population: as the birth rate decreases and life expectancy increases, we are going to have a much older population. Suppose life expectancy is 80-85 years. We are going to work 40 years to maintain 20 years. This will lead to many problems in many countries, such as Japan and Spain.
Therefore, what will happen to these two assets in the next 50 years seems clear. On the one hand, the stock market will stop substantially if there is no growth. We will see how this increase that has been going on for the last 200 years. This makes it perhaps not such a good idea to make assumptions based on the historical average.
On the other hand, it seems clear that central banks will continue to print money. Following Ray Dalio's statement at the beginning of the article, this will cause the Gold/Dollar ratio to continue to rise as it has for the past 50 years.
When you begin to understand this, that is when you really begin to understand the markets. Perhaps, if you internalized this today, it would already be the best thing you have learned all day.
⬆ M2 Liquidity ➡️ Population ⬆️⬆️ Gold Price.
⬆ M2 Liquidity ⬇️ Population ⬆️⬆️⬆⬆ Gold Price
Next, we are going to give you an alternative to store gold in a safer way and, in addition, get an extra 7% return every year.