Gold Fever: Myths, Memories, and Market Reality

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a certified financial planner, practitioner, and senior vice president and financial advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Welcome to another episode of Something More with Chris Boyd. My name is Jeff Perry. I am a financial advisor who works with Chris Boyd, and Chris is on vacation today, so I have the privilege of sitting in for him.

0:45 And joining me is our senior portfolio manager for our team, Brian Regan. Thanks for joining me, Brian. Good to be here as usual, Jeff. Hope you're doing well today. I'm doing great. Summer is coming to an end. The official summer, anyway, is coming to an end. The kids are getting back to school or off to college or whatever the kids are doing. And so it's a time for transitions, I guess, into the fall. Any changes in your world? My daughter is not yet in school, so that's a challenge. She's off at her grandparent's house in New Hampshire right now, having a great time. My son is luckily or unlucky, depending on how you view the pay I have to send them, and still in daycare.

1:30 So that's fun and reliable. But yeah, it's exciting. My daughter's heading into kindergarten, so it's going to be an interesting time in our lives. Yep, they certainly do grow fast. I can't believe that I'm saying this, but last weekend we helped move our granddaughter, Faith, into college. She's in New Hampshire at a college and running on the college team and experiencing all those new things about living on her own and starting this next part of her life. So exciting times for her as well. That is exciting. I love college. I wish I could go back. We always want to go back to things that we didn't appreciate when we were there.

2:10 And I did tell her that. I know it meant nothing to her, but I did tell her these could very well be the best times of your life. I actually think I did appreciate it. It doesn't mean I don't miss it. It was great at the time, and I just think fondly about it. Well, good luck to all the students returning to school and the parents who are dealing with emptiness or the challenges of daycare and childcare and grandparents and all that. A lot of things change this time of year. Brian, today I wanted to talk about an article that you wrote, and it's also a subject that comes up with our clients, I don't know, more frequently than I might think. And it's the subject of gold, meaning should I buy gold?

2:54 Should I have gold in my portfolio? I think you wrote this article in part because you've gotten so many requests from clients to answer their questions about gold. Is that right? Yeah, it comes up all the time. So I actually just titled the article, I get asked a lot about gold. I was thinking about titling it, and I was like, I don't know, this seems to work. This is pretty simple, but it's the truth. It's why I wrote the article. It's my two-page response to what I think is a good time to invest in gold or when I think it's an opportune time. And it might be what I find interesting, and I think it flies in the face of a lot of the common assumptions that people think or a lot of the common reasons that people come to me for investing in gold.

3:44 I think oftentimes they're far off base or they haven't thought of... Whenever I go into any investment, I like to think, well, why do I think it's going to go up? And when would I want to get out of it? Under what circumstances? And I think that's not always thought through from the folks that come to us, and that's what this article was trying to hit on. On a personal basis, I have never, even in my younger years when I was just starting out and accumulating assets, all through my savings years and various careers, and now getting near the end of my professional careers and thinking about the decumulation phase, I never...

4:28 I mean, I know gold exists as an investment, but I've never thought about it. Should I have it in my portfolio? And I see the times that now that I've been working with you guys for the last five years, I hear it from clients, so I think about it a little bit differently, but the times I see it most and think about it for a second is when I see those TV ads that are promoting, sometimes late at night or sometimes on partisan news channels that are, after one segment of fear-mongering, I'll equal distribute to left and right, or when I see it in the context of some retail show selling gold coins to the public.

5:16 And so I see that, but I just never really thought it should be part of someone's portfolio. When you were studying and throughout your years of managing money, has it ever come to you like, this is an inappropriate asset to put in my client's portfolios? Yeah, there was a time, there was a good stretch from, I don't remember, the summer of 2019 to probably the end of 2020, when we did have clients invested in gold. And the way I look at it, we're kind of jumping to the end of the article, but that's fine, all around. The way I look at gold is as a currency, a global currency with a perpetual 0% interest rate risk.

6:04 So put that into contrast, all the other currencies in the world have a government bond associated with them, at least all the developed currencies in the world. So if you hold dollars, you can effectively get a four and a quarter, 10-year risk-free rate of return right now by taking those dollars and investing them in treasuries, which is very easy to do. You cannot do that with gold, right? You can't get a risk-free rate of return. It doesn't have any cash flows associated with it, but it does have historical roots as a currency, and it's still viewed that way by the capital markets as a store of value.

6:44 And we can get into how that's been put in overdrive lately and why I think, when we talk about why I think it's gone up in value as of late. But when interest rates, all else equal, right, and that's always a key phrase when we talk about anything, there's usually a lot of variables pulling on different assets throughout the world. But all else equal, if interest rates are falling, global interest rates are falling, then gold becomes more competitive on a relative basis, right? Because it's always zero. So if we go from a 4% interest rate on the 10-year to a 3% interest rate, well, then gold just became a little bit more competitive versus the dollar.

7:25 And the more you have that throughout the globe, the more competitive gold is. So if you remember back when we had very low and even negative interest rates in parts of the globe, and then the Federal Reserve started cutting, and that was in 2018 to 2020, that's when we were in gold. And that's the logic I use that makes sense to me when investing in gold. And gold doesn't have consistent, strong correlations to much. So you really need to think about it in the context of something that makes sense to you, so you know that you can consistently and realistically get in, and then ultimately get out at a time that makes logical sense to you.

8:08 It kind of goes back to just knowing what kind of asset you own and why you own it, right? That can lead into, when people come to me and they want to buy gold, why do they want to? I mean, there's different reasons, sure. But isn't the primary belief by many, it's a hedge against inflation? It's going to protect you. Yeah. So that's, you know, jumping up to the top of the article. I'm all around. Yeah. It's good. It makes me think, right? The number one reason why people come is, I think they're afraid of inflation. And, you know, there is some recency bias there because we experienced some pretty severe inflation just a few years ago, and it's still relatively high.

8:56 You know, we're talking 2.9% on core CPI and 2.7% on the headline CPI. So it's still fairly high. And you couple that with the fact that gold's been on a bull run. You know, I kind of understand why people are putting one and one together and thinking that's the reason. But the real reason why people think that, and it's always seems to be people of a certain