Lear Capital Makes Gold Predictions, Says Downturn or Not, Precious Metal Investments Are Wise

Gold has garnered a number of headlines in the past year as investors snapped it up to counterbalance other investments’ lackluster performance — however, physical precious metal assets can be a worthwhile portfolio component in other economic scenarios as well, according to Kevin DeMeritt, founder and chairman of Lear Capital.

Investment in gold

For decades, the Los Angeles-based precious metal firm has helped investors add gold, silver, and platinum physical assets to their portfolio. Gold, DeMeritt says, can be a popular inclusion because it has an inverse relationship to stocks and other types of assets; former Federal Reserve Chairman Ben Bernanke has referred to gold as an element investors view as “protection against … really, really bad outcomes.” 

That notion has been on point in the past. Gold performed well during the Great Recession, for example; in 2008, gold prices rose 2.6%, and in 2009, the precious metal’s value increased by nearly 13% — and it continued to rise, according to U.S. Bureau of Labor Statistics data.

Between 2008 and 2012, gold’s value escalated significantly, with the producer price index for gold ultimately showing a 101% increase. According to a recent Forbes article, gold outperformed the S&P 500 by an average of 37% in six of the last eight recessions.

“The volatility of gold is not going to be the same as other investments,” Kevin DeMeritt says. “It typically is going to give you more stability. So when investors are worried about the economy, usually, you get more people turning to gold, which can drive up its price.”

Precious metals, though, can also be beneficial portfolio components at other times. A Lear Capital analysis of gold and silver prices between 2001 and 2021 found the metals outperformed the Dow Jones Industrial Average and S&P 500; gold’s value actually increased twice as much as either of the indexes did.

“It’s a great diversification tool,” Kevin DeMeritt says. “Gold has outperformed the stock market since 2000. If you would’ve placed $100,000 in stocks starting in 2000, that would be worth about $325,000 today. If you would’ve placed 80% of that in stocks [and] 20% in gold, that’s worth about $385,000 today; you picked up an extra $60,000.”

Amid Uncertainty, Gold Performed Well Last Year

The stock market had a tumultuous 2022; CNBC said it had been the worst year for the major indexes since 2008. At various points, the S&P fell by more than 20%, the Dow declined by 14% and the Nasdaq dropped by more than 28% in 2022.

All three indexes entered bear market territory; the Dow closed more than 8% down for the year, the S&P shed more than 19% and the Nasdaq experienced an overall 33% decline.

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Inflation, which had risen in 2021, remained elevated in 2022; the consumer price index for all urban consumers, considered to be a key inflation gauge, rose to 9.1% at one point, its highest level since 1981.

Midway through 2022, Kevin DeMeritt noted the high inflation level was prompting investor concern about volatility in the stock market.

“Each year, if I’m losing 8% of the value of my paper money purchasing power, I need something to offset that,” Lear Capital’s DeMeritt says. “Gold is going to be a great alternative because it happened, in the past, to be one of the better assets that can offset that inflation rate.”

Unlike some aspects of the economy, gold had a generally positive year in 2022, reaching a record annual average London Bullion Market Association price, administered by the ICE Benchmark Administration, of $1,800 an ounce. The annual global investment in gold coins and bars increased 10%, according to the World Gold Council.

What’s Next for Gold?

Thus far in 2023, some of the economic pressures that investors felt acutely last year have subsided. 

Compiled by the New York Federal Reserve, the Global Supply Chain Pressure Index, which measures international supply chain conditions, has declined for several months; aspects of the labor market — another factor the Pew Research Center identified as contributing to 2022’s high inflationary levels — are also different. 

CNN declared in June that the Great Resignation, which involved nearly 50 million workers quitting their job after the COVID-19 pandemic — the highest amount since the Bureau of Labor Statistics began tracking the information — was officially over; according to a recently issued report from payroll processing company ADP, the private sector added a half-million jobs last month, which is more than analysts had expected.

In addition, inflation, according to the latest Bureau of Labor Statistics report, has eased to 4%.

Although gold has been known to rise in value when the U.S. is experiencing economic difficulties, it can experience growth during other periods, too.

Despite the reduced inflationary pressures, for instance, gold demand in the first quarter of 2023 was up 1%, and in April, global prices for 1 troy ounce of gold reached $2,041.30 — the second-highest level on record, according to the World Gold Council.

Analysts have predicted gold prices could reach as high as $4,000 an ounce this year.

Whether or not the country enters a recession later this year — or experiences other economic issues — Kevin DeMeritt encourages investors to consider viewing gold and other physical precious metal assets as more than just safe harbor investments.

“One of the biggest misconceptions is that gold is this relic and doesn’t have a great performance record,” the Lear Capital chairman says. “It’s been around for 5,000 years; if something’s been around that long, [people] say, ‘Hey, maybe it’s old and just no longer useful.’ [But] the misconception that gold can’t produce profits for people, and it’s just more of a safety asset, is completely incorrect.”

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Author: Sanjib SahaSanjib is a finance based writer who has a deep knowledge in stock market, cryptocurrency and mutual funds. He is also a co-founder of Financesrule.com

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