Here’s what we cover in this episode:
💰 Why gold is surging and what’s behind the hype
🌍 How global politics (and China) are reshaping gold demand
🤯 Why gold may feel safe but isn’t always smart
📉 What behavioral traps investors fall into with gold
Executive Summary
When markets become volatile, investors naturally ask: Should I move part of my portfolio into something safer? These “flight to quality” or “safe haven” assets include Treasury bonds, cash, and gold. Gold has received particular attention recently after delivering significant gains. This post will contextualize recent gold price movements, summarize the pros and cons of investing in gold, and explain whether Wyze Wealth Advisors recommends gold for retiree portfolios.
Why Gold Is Back in the Spotlight
Gold prices have surged in recent years, drawing headlines and renewed investor interest. Several long- and short-term trends have driven this. One significant development increasing long-term gold demand was the launch of gold exchange-traded funds (ETFs) such as GLD in the mid-2000s. These funds provided investors of all sizes and sophistication levels with simple, low-cost, highly liquid vehicles to add gold to portfolios. As money flowed into these ETFs, demand for physical gold increased, driving its price higher.
More recently, concerns about tariffs and inflation have fueled demand for gold. It is widely viewed as an inflation hedge and as a haven during periods of geopolitical tension. In the wake of the Russia–Ukraine conflict and U.S. sanctions, countries such as China have sought alternatives to U.S. dollars for reserve assets. Many countries have shifted larger portions of their financial reserves into gold, boosting global demand.
Whenever financial markets are volatile, gold attracts interest as a hedge against economic risk and stock market volatility.
The Case for Gold
Gold has appealing qualities from a portfolio construction standpoint. First and foremost, its long-term correlation to stocks and bonds is near zero; often, when stocks fall, gold rises. This low correlation can help smooth portfolio volatility over time, offering significant diversification benefits.
Another attractive attribute is gold’s inflation-hedging properties. Historically, gold has performed well during certain inflationary periods and, over hundreds to thousands of years, has held its value against inflation.
The Case Against Gold
Despite its allure, gold has notable drawbacks. Unlike stocks and bonds, gold generates no dividends or interest, making traditional cash-flow-based valuation impossible. While gold has proven to be an effective long-term store of value, its long-term returns compared to its volatility are less appealing. Gold returns, though uncorrelated with stocks, are about as volatile.
Furthermore, over its entire history, gold has essentially returned inflation-equivalent gains—a cash-like return with stock-like volatility, which is not particularly attractive.
Lastly, gold’s low correlation and high volatility can lead investors into behavioral traps. Psychological biases such as herding (following the crowd) and recency bias (expecting the future to mirror the recent past) tend to push investors to buy gold at high prices and sell at lows. For example, from 1990 to 2005, gold significantly underperformed inflation after previous strong returns.
Is Gold Overpriced?
Since gold lacks cash flow, it cannot be valued like a stock or bond. However, it is possible to compare its market price to its long-term inflation-adjusted trend price. Historically, purchasing gold at prices far above this trend has led to poor future returns. Long-term studies suggest gold’s “fair price” may be near $1,200 an ounce, significantly lower than recent prices hovering above $3,000 an ounce.
This does not suggest an imminent crash, as uptrends and downtrends can last years or decades. However, it does warrant caution for investors tempted to buy gold at current highs.
Does Gold Belong in a Retirement Portfolio?
At Wyze Wealth Advisors, we employ an All-Season Framework to evaluate assets for client portfolios. This framework balances assets that respond differently to economic growth and inflation across varying environments. Treasury bonds, for example, provide recessionary protection when stocks fall and rates decline. Private debt and floating-rate Treasury bonds help during inflationary periods due to their rising income payouts. Stocks provide growth and income during expansions.
Gold may earn a place in our portfolios, but only if prices fall toward or below the long-term inflation-adjusted trend price of around $1,200 per ounce. At such levels, gold could function more effectively as a hedge against inflation and stock market risk.
Important Disclosures
This communication is provided by Wyze Wealth Advisors LLC, a registered investment adviser. We are fiduciaries and are required to act in our clients’ best interests. All material presented herein is for informational and educational purposes only and does not constitute personalized investment advice or a recommendation regarding any particular security, strategy, or investment product. Past performance is no guarantee of future results. All investments involve risk, including the possible loss of principal. Investors should carefully consider their individual financial situation and consult with a qualified financial advisor before making any investment decisions. Additional information about our services, fees, conflicts of interest, and disciplinary history is available in our Form ADV Part 2A brochure, which we will provide upon request.
Author: Nick Lewandowski, CFA®, CFP®
Resources:
Get your personalized Retire WYZE Assessment: A simple 3-step process where you can evaluate our services and expertise to make an informed decision about hiring a wealth advisor.
Click here for other ways to contact the team.
Explore case studies to see how we’ve helped clients.
This communication is provided by Wyze Wealth Advisors LLC, a registered investment adviser. All material is for informational and educational purposes only and should not be considered personalized investment advice or a recommendation regarding any specific security, strategy, or product.
The assumptions and scenarios presented are illustrative and do not reflect actual investment results. Projections are based on current market conditions, which may change. Past performance is not indicative of, and does not guarantee, future results. All investments involve risk, including the potential loss of principal.
Investment decisions should be made based on an individual’s objectives, risk tolerance, time horizon, and financial circumstances. Additional information about our services, fees, and Form ADV Part 2A is available upon request.
