The Truth About Gold as an Investment?

I have spent last couple of hours, trying to compare the performance between equity asset class vs gold for my financial planning client

She is a gold digger. I AM KIDDING!

She is very into gold investment. She only believes in gold as the best investment instrument.

I need to proof these points in order for me to debunk her belief:

• Gold price is volatile. There are time where gold price went "sideway" or downtrend
• Historical return for gold is about 4% as there is common saying : "Gold is a hedger from inflation"
• Different type of gold has different spread, thus would impact the return

So let's go into the nitty gritty

(I feel like I'm about to peel the onion skin, one by one)

What is the historical return for Gold & Equity?

I'm a rogue financial planner. I won't take common answers from google.

Therefore, i went into TradingView to export the historical price for Gold Index and a few indices for Equities.

Why do we need index?

It's the common benchmark in investment world, baby!

Let's have a look at Gold Index:

From this chart alone, we can say that :

• There is volatility in gold price. It does not guarantee the value won't go down
• If it went down, it happen in short period of time within 9 months to 2 years of time (but still, there is a factor of time)
• There was a time where the price went sideway in 4 years. If it happen, you'll miss the opportunity to grow your assets in 4 years time

(Btw folks...this historical data won't guarantee future performance ok!)

And i didn't stop there. I went into further detail to see its historical return in 1 year, 3 years, 5 years and 10 years time.

So I have exported the data and this is my finding:

Let's assume there is one fella invested his money for $1,000 every year:

There you go

From these historical data, we can prove that:

1. Despite gold's return stability (based on the returns photo), there is still volatility in its price (refer the chart). It does not guarantee the value won't go south
2. The IRR return for 1 year, 3 years, 5 years and 10 years are stable : 5%-7% with the average return stabilize at ~4% per year : does "the hedger" ring any bell?

Just a quick one, let's take a look on equity return from different indices, but we shall discuss about this later in another post:

Now let's quickly about gold spread.

Or in other simple word, the COST

These are common forms of gold that people buy:

• Jewelry - platform : gold shop like Kedai Emas Anuar, Poh Kong, Habib, etc
• Bars & Coins : Public Gold, Gold shop, etc
• "Digital" : Bursa gold, Maybank MiGA, PG Mall, etc

the spread varies from one form to another, and one platform to another.

I don't have the luxury of time to check the spread from one platform to another.

But based on my personal experience of selling an American Bullion gold coin, most of gold shops in Malaysia have asked me for 40%-60% spread. Finally, I manage to find a gold trader where he bought the gold coin for less than 3% spread.

Ok that's enough for Gold.

What we can learn here is:

1. Diversification is important. When the price went downward or sideways, other asset classes might help us to buy gold more at "discounted price" through portfolio rebalancing
2. Gold indeed act as a hedger from inflation
3. There is no "standard spread" - you have to look around for the best deal.