Each quarter, we share videos on investment topics to help you better understand how we manage portfolios. This quarter we review our current investment position in gold. Mankind’s relationship to gold goes back at least five thousand years with its use in jewelry and art. Gold started being minted for use as currency over 2,500 years ago. Two hundred years ago, gold’s excellent electrical properties were discovered, leading it to be used today in everything from cellphones to satellites.
Boulay Financial Advisors began using gold in client portfolios about four years ago as we became concerned with the potential impact of inflation as the world emerged from the COVID pandemic. By early 2022, there was little doubt that the Federal Reserve would need to raise interest rates significantly to combat inflation, which in turn would negatively affect stock and bond values and possibly pull the economy into a recession. Adding gold was a logical step as a hedge against inflation, falling bonds values and stock market volatility.
As you can see in the chart, gold did indeed hold its own in 2022 losing less than 1% while the stock market, as represented by the S&P 500 Index, lost over 18% and the bond market, as represented by the Bloomberg Aggregate bond index, was down 13%, all due to the Federal Reserve’s aggressive raising of interest rates.
But gold then took off in 2023, rising around 60% over the next two years, even as inflation dropped and the economy was doing well.
What pushed gold prices higher was the other major event of 2022—Russia’s invasion of Ukraine. In response, the U.S. and its western allies took the unprecedented step of closing off Russia’s access to global financial markets. That maneuver also greatly concerned major independent powers like China, India and Turkey. Since 2023, all those countries have been buying large amounts of gold to use as a backup currency in case they need to get around doing global financial transactions in U.S. dollars.
The massive purchases by those countries have provided an elevated floor to gold prices which has more recently attracted speculators looking to jump on the gold rally train. But for how long? When do these countries decide they have purchased enough, and their price support diminishes? There is no way to predict. For that reason, we made the decision that it was time to take profits and cut back our targeted allocation to gold. We still feel gold has a role to play in client portfolios but it’s a smaller one as we wish to limit the downside risk potential.
So, we hope you now have a better appreciation of our position on gold in 2025. As always, if you have any questions about what was covered in this video, reach out to your Boulay Financial Advisor. To learn more about Boulay, please check out our website or email us at learnmore@boulaygroup.com.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein. This is meant to be a reference/guide, individual circumstances can influence outcome, verify planning with accounting and financial professionals.
This information provided has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does it constitute an offer or a solicitation of any offer to buy any securities, products or services mentioned. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Consult your financial professional before making any investment decision.
Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Past performance does not guarantee future results. These opinions are based on our own observations and third-party research and are not intended to predict or depict performance of any investment. These views are as of the open of business on May 15, 2025, and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Diversification cannot guarantee a profit or protect against a loss. All investing involves risk, including the possible loss of principal. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.