Gold Is Often Questioned During a Rise
When gold prices go up, many people start saying that the rise is over and a fall should come next. This kind of talk comes up every time gold moves higher.
Most people look only at short-term price moves. They do not look at how gold behaves over very long periods of time. Because of this, the bigger picture is often missed.
Looking at Gold in the Long Term
If we look at gold over a long cycle, the story looks very different. When gold is adjusted for inflation and compared with cash, it has not really gone very far since its peak in 1980. (see the image below)
In simple words, if money was kept in a bank and compared with gold, both are still around similar levels in dollar terms. There has not been a big change here.
Gold Compared With Bonds
When gold is compared with government bonds, the returns of gold are still lower than its earlier high. Bonds have done better than gold during this period. This clearly shows that gold has not yet crossed its past peak when seen against bonds. So, the idea that gold has already gone too high does not fully match the long-term data.
Gold Compared With Stocks
When gold is compared with stocks, the gap becomes even bigger. Stocks have moved much higher over the years, while gold is still far behind. The gold-to-stock ratio today is much lower than what it was in 1980. This means gold has a lot of catching up to do if a similar type of rally happens again.
Why the Rally May Not Be Over
From 1972 to 1980, gold saw a very strong rally. If gold has to reach those levels again in relation to stocks and bonds, it still needs to rise a lot. Even today, gold is around fifty percent lower than its 1980 peak when compared with stocks, and about seventeen percent lower when compared with bonds. This shows that more upside may still be left.
Ignore the Noise Around Every Level
At every price level, people keep saying that gold has made a top. This happened at many price points in the past as well. But so far, gold has not shown any clear sign that a real top is in place. Looking at the long-term picture, the potential in gold may still be far from over.
