by Gary Alexander
June 28, 2022
Stocks have retreated over 20%, on average, so far this year – the standard definition of a bear market.
You and I have lived through a lot of these bear markets. I know a lot about market history and cycles, but I would never put that data on the gambling table trying to “time” any “sell all stocks” market call. To me, being out of the stock market is far more dangerous (never knowing when to re-enter) than riding out any inevitable storms. I prefer to stabilize my net worth through hefty holdings in land and gold.
Real estate is an easy sell. Most of us own our own homes and have seen them appreciate over time. In the current bear market, housing in most regions has held up well. In fact, housing in my home region is downright “bubbly,” even ridiculous, with friends receiving offers $400,000 over the asking price for generic homes in Seattle, or even more for the few homes that open up for sale in the islands I live in.
Overall, median home prices are up 15% in the last year. The National Association of Realtors last Tuesday reported that the median existing home price has risen 14.8% in the last 12 months to a record $407,600, while the median new home price in May is up 15% in the past 12 months, reaching $449,000.
With mortgage rates up and bubbles in some regions, I’d say real estate is more of a hold than a buy now, so let me focus on gold, which has not performed as well as real estate this year – but it is not meant to compete with stocks or real estate. During 50+ years in the gold market, I have tried to convince gold bugs that the yellow metal is a substitute for paper money (currency) or bonds, not stocks or land. That’s why I hold about 10% of financial assets (not counting a home) in gold, 70% in stocks, and 20% in bonds.
The experts say I’m crazy. As a “retired” (or older) person, I’m supposed to subtract my age (77) from 100 and hold that percent (23%) in stocks, and the remainder, my age (77%). in bonds, since I supposedly need the income. Politely, I say “bull crap.” I don’t need or want the income. The IRS’ minimum required distribution provides enough income, and I’m still working, so who needs the Treasury’s stinking 3%?
Gold’s Long-Term Record of Rising When Stocks Fall
The Dow reached its 20th Century low 90 years ago, on July 8, 1932, when FDR was nominated to be the Democratic candidate for President. The Dow was down 89%, while gold was frozen at $20.67 per ounce.
President Franklin Roosevelt made it illegal to own most forms of gold in his second full month in office, in May 1933, under threat of 10 years in jail or a $10,000 fine if citizens “hoarded” this inert metal. Then he revalued gold up 69.3% (devaluing the dollar 41%) on his birthday, January 30, 1934, by raising the gold price to $35 per ounce, denying Americans that windfall profit. Americans then poured money into Homestake gold mining shares, which soared in the Great Depression after FDR confiscated private gold.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
During the later bear markets of 1974-75, 1979-80, and 2008-09, gold also went up while most stocks went down. Gold softened the blows of stock market collapses. Thankfully, I learned this early from my father, a gold bug in a Seattle investment club in the 1960s, and from newsletters he sent me by Harry Schultz and books by Harry Browne, “Adam Smith,” and others. As a result, I’ve been writing on gold in national publications for well over 50 years, from before the time Nixon closed the gold window in 1971.
The only problem with this theory was that gold bullion was still illegal for Americans to own until 1975, so creative investors like my dad stocked up on South African Krugerrands, silver coins, and gold shares.
This plan worked very well in the 1970s, when hardly any paper investment worked. Stocks were down, especially after inflation and commissions, as major brokerages charged up to 8.5% commissions before discount brokers were born in 1975. The U.S. dollar lost about 75% to the Swiss franc and German mark (and 96% to gold). Bonds lost money as inflation soared. Passbook savings accounts were mostly frozen at 5.25% returns when inflation doubled that. But gold and silver soared 24-fold and 39-fold, respectively.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The 21st Century Also Belongs to Gold
As we hit the mid-point of 2022 this week, we are 22.5 years into the 2000s. Worldwide, gold is near a record high in many currencies, and it has held up remarkably well in dollar terms considering that the U.S. dollar is now at a 20-year high against a basket of leading currencies. (The U.S. dollar is up mostly because the Fed is raising rates while Europe and Japan stubbornly keep their key short rates near zero.)
Gold has virtually tripled the returns of the three major U.S. stock market indexes through last Friday:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
(In all fairness, I’m not including the 20 years from 1980 to 2000 when stocks soared and gold was flat, but that only underlines the fact that gold is like insurance. It usually only pays off in times of trouble.)
Since 2020, the Federal Reserve has flooded America with over $7 trillion in printing press money, most of it not sent to needy families or businesses. Most went to middle-class employed people who used it to bid up prices of stocks, housing, bitcoin, and commodities, including gold in 2021. Now that the Fed has stopped printing new money, is raising rates, and is sopping up some of that money through “quantitative tightening,” they have killed the stock market, bitcoins, bonds, and many other investments, but not gold.
What happened? At the Federal Open Market Committee meeting on November 3, 2021, Fed Chair Jerome Powell said the FOMC “will start to reduce the pace of asset purchases,” a form of “tapering.” Previously, the Fed had been purchasing $80 billion in U.S. Treasury securities and $40 billion in U.S. agency securities each month, a rate of $1.44 trillion in new money each year. Powell said this gravy train would disappear in 2022 and the Fed would sop up $95 billion/month starting in the second half of 2022.
Then came the separation of investment wheat from chaff, sheep from goats: Bitcoin peaked at $68,925 in November. It lost 75% in seven months, hitting $17,600. The tech-heavy NASDAQ index also peaked in November at 16,212. In mid-June, it hit a low of 10,565, down 35%. Blue-chip S&P 500 stocks lost 25%.
Gold has been flat at around $1,820, but sometimes flat is good. Boring looks great about now. The average gold price was $1,820 last November and $1,837 in June, and the fundamentals look good:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Worldwide gold demand for the first quarter of calendar year 2022 was 34% higher than for the same period in 2021, according to Gold Demand Trends released by The World Gold Council. Total market demand reached 1,234 metric tons — the highest quarterly total since the fourth quarter of 2018, and 19% above the five-year average of 1,039 metric tons. This impressive increase is mostly due to investments in exchange-traded funds (ETFs), which rose to 268.8 metric tons last quarter, 58% above the 170 metric tons bought in the same quarter in 2021, and the U.S. Mint’s first quarter 2022 gold sales of 518,000 ounces of American Eagle and American Buffalo gold coins was the highest first quarter sales since 1999.
So, I sleep better in market declines in my fully owned, no-debt home bed, with a 10% holding in gold.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
What’s Got Elon Musk So Cranky Lately?
Income Mail by Bryan Perry
The Market Heats Up as the Inflation Outlook Cools
Growth Mail by Gary Alexander
Own Gold and Real Estate for Portfolio Stability
Global Mail by Ivan Martchev
It’s Too Early to Call a Bottom
Sector Spotlight by Jason Bodner
The One Piece of News Investors Should Monitor
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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