Worrying About an Apocalypse? Don't Buy Gold

Whenever short-term market uncertainty surges, the same conversation unfolds...

It came up just after the 9/11 terrorist attacks in 2001. It came up during the financial meltdown in 2008. It came up many other times throughout our lifetimes as well.

And now, it's happening again with all the global political upheaval and saber-rattling. The war between Russia and Ukraine and ongoing tensions between China and Taiwan are just the latest examples of how this conversation crops up.

In short, the mainstream media pushes an idea of a financial and societal apocalypse. Using words like "crisis" and "war" and "holy war," the media stokes fears about some sort of coming destruction of civilization as we know it, as if disaster were right around the corner.

Those fears ultimately lead to the same conversation for investors – the idea of moving assets into gold. But as we'll discuss today... gold is a trade, not an investment.

Given all the data on the subject, it still amazes me how well this conversation permeates investor psyche...

In the U.S., gold doesn't outperform equities over any meaningful period for investors.

Can the precious metal beat equities in some months and years? Of course. But across a longer span of 10 years or more, gold has proven to be a terrible investment.

That's why I said that gold is a trade, not an investment...

It can outperform over the short term. That usually happens during periods of high currency devaluations – like in the 1970s. However, please note that I didn't use the word "inflation"...

As financial adviser and investing-newsletter pioneer Howard Ruff said so eloquently many decades ago, explaining inflation as rising prices is like describing a hurricane as falling trees. That dull description misses the point of determining why the trees are falling.

When prices rise because demand exceeds supply, it shows that the economy is functioning properly. It signals businesses to invest and produce more. And rising consumer and business demand lead to bustling economies and increases in corporate earnings.

But on the other hand, rising prices from currency devaluation can devastate markets, economies, and countries. For example, from 2001 to 2008, Zimbabwe's hyperinflation soared to higher than 100% per year. Over that span, the country's gross domestic product cratered by more than 50% – from $6.7 billion to $4.4 billion.

And yes, currency devaluation does cause the price of gold to rise – briefly, at least...

In the following chart, you can see that the price of gold spiked to a near-record high in March – not long after fighting began between Russia and Ukraine. Take a look...

But notice that the price of gold has dropped since that initial spike. It's now trading at roughly the same price as the beginning of 2021. Meanwhile, even after the stock market's recent contraction, the S&P 500 Index is still up around 10% over that span.

And over longer periods of time, the pattern of U.S. equities destroying gold in performance is incredibly pronounced and obvious. The precious metal isn't even in the same ballpark...

In June 1992, gold was valued at around $340 per ounce. It's at roughly $1,870 per ounce today. That's a gain of about 450% in three decades.

Over the same period, the S&P 500 is up around 900%. It's blowing gold out of the water as an investment...

But what if things get really bad?

Between the COVID-19 pandemic, the Russia-Ukraine war, and global unrest over the past few years, the media is again trumpeting the idea of financial and societal apocalypse.

Heck, even some of my wealthiest clients have said in private that their interest in gold stems from fears about the entire monetary system collapsing – or perhaps a nuclear war.

And yes, I realize that many folks make an emotional connection. They believe gold would be a "safe haven" and a reliable store of value if the economic world collapses.

The prevailing idea is that if the world gets really bad, gold will be the only savior.

Well, apologies to all those readers who've stuffed gold coins under the beds or stashed a few gold bars behind their entertainment centers. And I'm even more sorry to anyone who put secret safes into their homes or buried them in their backyards to hoard gold.

The thing is, if we really get to that point – a financial and societal apocalypse – gold won't help you. If pandemonium breaks out, only two assets will hold any value...

1. Food
2. Guns

And if you don't have the guns (and ammunition), you won't have the food for very long.

My point is simple...

Gold and other precious metals can be great short-term trading vehicles. Like anything else in investing, you can make money if you buy and sell at the right times and prices.

But as we've seen today, gold can't keep up with stocks as a long-term investment. And it wouldn't be any help in an apocalypse, either...

In a world where people are struggling to survive, anything that doesn't help that goal – like food and guns – is worthless. And I'm sorry to say it, but a shiny metal bar wouldn't help you at all if that were to happen.

As humans, we spend too much time worrying about the past and future...

I encourage you to check out German author Eckhart Tolle's phenomenal book, The Power of Now.

The mainstream financial media and novice financial advisers parrot this "buy gold as a store of value" idea by creating and reinforcing fear. And frankly, it works on many people...

In the mind, fear can override a person's logical thought process. Technically speaking, enough fear can create an "amygdala hijack." It prevents the use of the prefrontal cortex in the brain. That's where our calm, cool, rational thinking would otherwise prevail.

Tolle provides some wonderful guidance in his book about remaining peaceful by focusing on what's happening right now. It's important to not worry about every horrible scenario that could happen tomorrow – because they also might not happen, after all.

The media and the herd mentality can cause our minds to be hijacked. We can get stuck in overly mentalizing doomsday scenarios, with illogical conclusions of how to invest as well.

If you're concerned about the world ending, don't buy gold. Instead, visit your local hunting outfitter. And consider stocking your pantry with more canned goods.

More importantly, if you think there's any chance that the world will continue to go on as it always does, then buy businesses for the long term through U.S. stocks. And stay away from misconceptions like gold outperforming stocks over any long-term scenarios.

I can't see our pasts or futures anywhere. I'm looking around right now... and they just don't appear to be anywhere. All my power is in the now.

And whatever I do right now, I know it will be better if I'm doing it lovingly, joyfully, and peacefully. Trying to do anything out of fear will lead to bad life decisions and terrible investing decisions.

The same advice will help you as well. By staying calm and at peace right now – and in every now – you'll be a much better investor and human.

Wishing you love, joy, and peace,

Joel