Good as Gold? Timing the MarketSubmitted by Bernhardt Wealth Management on November 18th, 2019
Readers of this column have often seen us explain in various ways how difficult it is for any investor to time the market—“buy low and sell high”—on any kind of consistent basis. In fact, we typically warn investors of the long-term dangers to portfolio performance of making any serious investment decision on the basis of market timing. Whether instigated by the latest financial headlines or the advice of one of the many self-proclaimed gurus who regularly issue authoritative-sounding pronouncements about market direction, the impulse to “do something” in response to an opinion about what is about to take place in the financial markets is almost always one that should be tempered by careful reflection.
The price of gold provides a recent example. In early September, headlines proclaimed the largest price drop in three years for gold, following closely on the heels of encouraging news about U.S.-China trade talks. Gold is traditionally seen as the ultimate safe haven; when the financial markets appear at their most worrisome, some investors look to gold as a safe-haven asset, no matter how bad things get. Thus, indications that the trade war between the U.S. and China might be ending were perceived as positive for stocks and, correspondingly, gold was seen as less valuable.
At the time of these developments, gold fell by nearly $35 per ounce, about 2.2% of its value. This was the largest percentage decline in over a year and the largest price loss in almost two years.
The question must then be asked: Was this a buying opportunity? The commodity had just taken a nose dive; shouldn’t that indicate that it was time to load up on gold at relatively low prices?
On the other hand, a longer-term perspective yields a different picture. On September 5, 2019, the day of the dramatic decline, gold closed at about $1,526 per ounce. But by the end of that month, the price sat at $1,474 (-3.4% from the earlier price), and as this is written, gold is worth about $1,468 (-3.8%). For an even broader perspective, consider that for most of the early 2000s, gold traded between $200 and $800 per ounce.
Seen in this way, was the price drop on September 5 a buying opportunity? Perhaps it was, but as matters would prove, not because of any dramatic, short-term development. For those incorporating gold as a portion of their long-term investment strategy, it can certainly make sense to buy on selected price drops. But such decisions should never be made on the basis of emotion provoked by sensational headlines.
We counsel our clients based on empirical, scientifically proven investment principles. Our aim is to position them for success that is measured by each individual’s goals and priorities, not by claims of superior knowledge of future market movement. If you would like more information on how you can put our evidence-based investment philosophy to work for you, please let us hear from you.