Gold rally ignored but easy to understand.

In the Globe & Mail, I read the headline “Generalists still wary on gold despite recent rally” but:

• The rally isn’t that recent.
• It’s been ignored by more than just ‘generalists.’

In the late summer of 2018, in anticipation of a selloff in markets, I sold my investments in the energy sector (which were bought in the doldrums of 2015 for crude prices and the subsequent rebound was quite rewarding) and was wondering what to buy.

After some consideration I decided to buy a gold stock.  A contrarian by nature, I noticed that bullion and the stocks were hardly in vogue.  My pick was Agnico-Eagle (AEM on Toronto Exchange), not as widely followed as others and I’ve been a fan of their management team for decades.  I paid $55 per share and its now worth $81.  (For the record, I bought some other overlooked non-gold stocks that didn’t do well at all.)

The rally in gold has been going on for some time, just overshadowed by the bubble in the FAANG gang.

And although historically gold is ‘supposed’ to be the thing to own during periods of high inflation, a consideration that never popped up was:  What happens when the opportunity cost of owning gold is minimal?  Below is a chart of the US 3-Year Treasury yield over the same (roughly) time period.

In other words, the cost of owning gold is not only minimal, adjusted for inflation the opportunity cost is zilch.  Unless you anticipate a bump in interest rates soon – which seems less and less likely as the effects of Coronavirus manifest – then gold may soon pass through its earlier peaks as word gets out that there’s an alternative to the tech stocks that seem vulnerable.