Episode 124:

Should I Buy Gold?

Returns, Risks & Portfolio Strategy

Keith: Welcome to the Empowered Investor Podcast, brought to you by the advisory team at Tulett Matthews and Associates. Have you ever felt overwhelmed by the number of voices telling you how to plan or invest for your future? We’re here to help you cut through the noise, bringing clarity to your investment decisions and helping you build lasting financial peace of mind. Learn more and subscribe today at tma-invest.com.

Welcome to The Empowered Investor. My name is  Keith Matthews, and today I’m joined by my co-host Marcelo Taboada. Marcelo, welcome back to the show.

Marcelo: Keith, I’m very happy to be back. The family’s growing, TMA is growing. It’s a good time.

Keith: Well, tell our listeners what’s going on then.

Marcelo: Yeah, so my wife and I are expecting a little girl in June of 2026. We already have an 18-month-old and 2 dogs. So, the Taboada family is very chaotic now and it’s about to get more chaotic, but it’s very exciting.

Keith: Congratulations again, Marcelo. It’s always amazing to see our team members have families that are growing and super happy and healthy.

Marcelo: Absolutely.

Keith: Today’s show is a great show. We’re going to talk about gold.

Marcelo: Yeah.

Keith: It’s a hot topic, but we are going to review why it’s a hot topic. We’ll introduce our listeners to an evidence-based framework around how to think about gold, its role, limits, risk and return characteristics, and possible trade-offs for a long term. How to include it, if and how to include it in a long-term diversified portfolio. The goal of really today’s episode is not about forecasting what is going to happen with gold. It’s about really answering a core question, which is, does gold deserve a long-term allocation and how to think about that from a portfolio construction perspective? So, let’s jump into it, Marcelo. So, what’s, what’s going on with gold right now?

Marcelo: Yeah. So, look, first and foremost, gold returned 70% last year. The returns in 2024 have been also very good. I think what that does is in terms of investment behavior and like people’s minds, it becomes this thing where people have FOMO and like, should I have some more? Should I do gold? And I always get worried when I hear people who are not related to.

Keith: Well, forget about should I have more? Should I have it as a line item?

Marcelo: Yes. Yes.

Keith: Like, should I have it? Should I own it somehow?

Marcelo: Yeah. And I know we’re hitting some sort of psychological mania when people who are not in the investment industry start asking me like, hey, what do you think about gold?

Keith: Well, you were saying the story offline that you hopped in an Uber a week or two ago.

Marcelo: Yeah, yeah, and I told the guy what I did for a living, and he’s like, hey, like, what do you think about gold? Like, it’s crazy, right? He was asking me what to do and what to buy, and like, we had this whole conversation about physical or do you hold it in stocks. And so that’s happening a lot now. And I think the other thing that’s affecting all this is the geopolitical situation, right? There’s a lot of talk about high government debt levels and whether they can repay it back. There’s a lot of talk about the dollar being- losing a lot of value, all the wars that we’re having, Donald Trump. So, I think all the ingredients are there for it to be a topic of conversation in the investment world right now.

Keith: Fair enough. And it did hit its peak in, I think, the second or third week of January. It hit about $5,300, right? $5,354 to be exact. And it’s currently trading around $5,100. So just a few years ago, 4 or 5 years ago, it was trading at $1,500, $1,600. So, this is massive surge. And we’ve seen over our careers, Marcelo, lots of thing’s surge. You know, honestly, like you mentioned, during the pandemic, we saw the pandemic stocks surge. In Canada, we’ve seen marijuana stocks surge. We’ve seen certain types of technology stocks surge. Gold isn’t that different. However, this has got this incredible history. Let’s jump into that. It’s got an excess of a 6,000-year history for capturing value, for being used for certain things. Like, tell us a little bit about the history. I’m not going to take you back into your political science degree and, and all the reading that you do, but, but share with us some thoughts here.

Marcelo: Right. There are some unique physical properties. I think everybody knows that it is extremely rare. It doesn’t corrode or oxidize. It is nontoxic and it’s highly malleable and ductile. So, it has a lot of purpose. But back in early civilizations, it used to be used for coinage and things like this, and as a sort of value and medium of exchange. And historically, it’s always been used for basically run economies, right? It’s associated with wealth, power, permanence, and trust. I mean, I don’t have to walk you through history to know what the Spaniards did when they came to America and extracted all the gold. They went crazy for it, and that drove a lot of the wars in Europe, right? Then you have the modern sources of demand for gold. Now, what affects the price today?

Keith: Now you’re talking demand, correct? Okay, correct.

Marcelo: So, you have jewelry, so that’s about 50% of global demand for gold now. So, some countries have very strong cultural ties to gold, like China and India being one of them. Those are like big populations to feed into this demand. Then you have industrial and technological uses. So, you have electronics, aerospace, military applications, medical applications that have components of gold. Central banks obviously hold reserves. They have a lot of assets as reserves in gold. Then politically, it’s also viewed as a neutral store of value. So, this is still the case.

Keith: Neutral being nobody is using the US dollar or the euro or the Japanese yen. They’re choosing something different.

Marcelo: Correct. Investments and collectibles are a big part of it as well. And then you have bars, coins, ETFs, and obviously this part is highly influenced by sentiment and narratives. So, this is where the psychological geopolitics panic behavior comes into it. A lot of the argument for gold is like, if everything goes to, you know, we have an apocalyptic moment and you have gold, you’ll always be okay. I have something to say about that, but anyways, I think people get the idea.

Keith: Fair enough. Let’s switch to topic of gold as an investment. Now let’s start edging into this investment idea. So, I think there’s a nice way to frame whether gold is an investment or not. What’s the thinking around that?

Marcelo: Right. I think investment people, finance people are trained to think about assets in a certain way. So when we think about gold, we know that it’s not a productive asset. And I know it’s hard for people to hear that, but hear me out here. So what makes a productive asset? So typically when you have an asset that has an income, you can calculate the expected return based on that income, right? So gold has no dividends, no interest, no rent. Okay. So when you think about an investment in gold, it has to be compared to the opportunity cost. So in other words, if you allocate capital to gold, it cannot earn a return elsewhere. So there is an opportunity cost of holding an asset like gold.

Keith: Yeah. So there’s really two components to what you’re talking about here. Gold doesn’t really have an expected return. It’s got no cash flows associated with it, no dividends, no interest. And in and of itself, the very nature of of taking money away from those productive assets and putting it in gold is an opportunity cost. And the cost is you’re not receiving the return of the other asset classes that you could otherwise invest in.

Marcelo: Correct. And watch out, we’re not saying it’s completely useless, right? Because that’s not what we’re saying, but you have to compare it to something. And at the end of the day, when you think about people’s portfolios, our clients’ portfolios, the portfolio serves a purpose, right? And that’s what you got to compare it to. Yeah.

Keith: So the next little bit here that we’re going to maybe go 5 minutes into this concept of sort of how returns have, have worked for gold as well as volatility. And so we’ve got this long history. Gold’s got a history of hundreds of years where they’ve been tracking returns. So we’re going to do our best here to provide a little bit of clarity around the returns. So let’s just start with Marcelo, the last 30 years of returns from 1990, actually 35 years from 1990 to 2025. How has gold done versus other things?

Marcelo: Yeah. So if you look at the compound compounded return, so compounded per year, gold has returned 7.3%, TSX has returned 8.7%, the S&P 500 has returned 11.3%, Canadian home prices since 1999, we, we have a bit less data there, 6.05%. Okay.

Keith: Gold has done perhaps better than Canadian homes, but not as good as stocks.

Marcelo: No.

Keith: In this period that we’re looking at, and we’re going to start to go into lots of different periods here. So what is fascinating about gold is that depending on the period you’re looking in, it either looks like a superstar, or it looks like a dud. And you know, if you go in the last 7 decades, there’s probably been 2 short periods in there where it looks like a superstar and the rest of the period looks a bit dudish. We’re going to continue on with that. Jeremy Siegel had some really interesting long-term studies. Now we’re talking 220, year returns. What is he coming up with his returns?

Marcelo: So, if you invested $1 in gold in 1801, so that’s 1801, you would have today $127.

Keith: So 1 turns into 127. That sounds like a great return, Marcelolo, over 220 years.

Marcelo: If you invested $1 in US stocks in 1801, you would have $40+ million. Wow.

Keith: So, gold doesn’t look like that great of an investment over that period relative to productive assets like stocks and companies. So, part of the long-term message here is wealth is created historically from productive assets as opposed to store of value assets.

Marcelo: Correct.

Keith: So here’s a question for you, Marcelo. A lot of people talk about, well, gold is less volatile. There’s a security issue around it. What does the research show about the stability of gold and the volatility of gold?

Marcelo: Okay. So based on the World Gold Council historical data sets and analysis, we have the following data. So, if you look at 1971 till 2023, the volatility for gold was 20%. The volatility for US equity was 15%. Okay. If you look at from 1988 till 2019, gold volatility was 15.4, global equities were 14.9.

Keith: Yeah. So, either way, what these research pieces are showing, and they’re different, slightly different periods, and they’re comparing slightly different equities, US or international equities, this idea that gold is less volatile, is more secure, is safer, It’s just not correct. It’s got higher level- equal to, equal to, or higher levels of volatility than diversified equities.

Marcelo: And lower returns.

Keith: And again, this is over 40 or 50 years. So yes, the combination of two things makes it what we would call an unfavorable asset class for long-term investing, which is high volatility, lower returns. That’s typically not what you try to include in a portfolio. Okay, so that’s – that talks about the volatility part. Now let’s get to gold and inflation. Is it a myth or a reality? Everybody talks about gold as an asset and an investment that protects you against inflation.

Marcelo: Yeah, I’ve heard people say gold is the only thing that protects you against inflation. Now, those may not be very informed statements, but it does have this perception amongst the casual investor or retail investors. Not all of them, obviously, but I think now more and more you’re hearing that. And there’s an economist called Roy Jastram. I hope I’m getting his name right. He talked about this idea of the golden constant. So, what he found is that over centuries, gold roughly preserves purchasing power. It doesn’t beat it; it’s just preserving the purchasing power. So, it supports the idea of gold as a long-term store of value. It doesn’t mean you’re beating the inflation, but you’re keeping your constant, your purchasing power constant.

Keith: And that’s a pretty fundamental finding here. I mean, this is- there’s a difference between staying, keeping up with your purchasing power versus what long-term investors try to do, which is grow your purchasing power. Increase your returns higher than the inflation rate.

Marcelo: Yeah, and it makes sense, right? Because if you have gold that’s existed for thousands and thousands of years, you know, empires have come and gone, and a lot of assets or the value of currencies were based on gold, it makes sense that as we go through history, the value of gold will be sort of constant, right? Now, what the research shows is that when you look at shorter periods of time, which is what we’re dealing with, like we’re dealing with 10 to 30 years, maybe 35, maybe 40.

Keith: You’re talking from an investment perspective.

Marcelo: Correct.

Keith: The average investor’s time horizon, you know, depending on ages and so on and so forth, you’re talking 20 to 40 years.

Marcelo: Correct. And what you see there is that in some decades it’ll outpace inflation. In some other decades or periods of time, it would not keep up with inflation. So, you look at, for example, 1940s to the 1960s, so that’s a 20, year period. Gold had negative real returns. So, in that same period, stocks outpaced inflation. So, you would have been better off owning stocks. Now, in the 1970s, between ’73 and ’80, so 7 years, gold went from $35 to $843. So, inflation was about 8% during that time period. Gold delivered about 21% real returns. Stocks returned ,2%. So, you see how you go through these decades that sometimes it works, sometimes it doesn’t. But we do have this perception that it always happens, and it just doesn’t.

Keith: And after the ’70s, we went into the ’80s and ’90s, and essentially gold continued to produce negative real returns where stocks did extremely well.

Marcelo: Correct.

Keith: So, you know, Marcelo, I remember 1980, I’d probably be in grade 10 because I graduated high school in ’81.

Marcelo: Yeah.

Keith: And, you know, I followed up with my folks and everything. You understood what was going on. Times were tough. You’re going into recession. Inflation was super high in the ’70s. I remember hearing this all the time. Inflation super high, stocks did poorly, fixed income or bonds did not keep up with inflation after taxes, it’s about half of inflation. The only thing that was doing well was this speculative thing called gold. It was off the charts. So, this is what I remember when I was 16, how well gold had done. And I also recall how well silver had done. And so, this was just a memory of just how spectacular these returns were. I mean, you look at those returns from the mid,’70s to the late ’70s, and again, we’re in this kind of crazy period where gold – Mid,’70s to late ’80s. No, mid,’70s to early ’80s.

Marcelo: Early ’80s.

Keith: Gold just took off as a return. So clearly, when you’re sitting around and you’re looking at, if you think about my parents would have been, and that whole generation, what seems to be doing well right now? Well, it wasn’t a whole bunch of things. It wasn’t diversified stocks. It wasn’t bonds. But boy, look how well gold did. And so, you know, it was just one of these periods I vividly remember gold being on fire as a 16-year-old, as was silver. And then subsequently, it fell 50%. And then gold then took 25 years to come back to its original level.

Marcelo: That’s crazy.

Keith: Yeah.

Marcelo: I mean, the ’70s was a turbulent decade. We dropped the gold standard. We had high inflation, low economic growth. Stocks didn’t do as well. We were in the midst of the Cold War. So, lots happening there for sure.

Keith: Yeah. And then if you fast forward into the decade of the 2010s and ’20s, gold has really taken off from $2,000 to $2,500. And it’s really 2024 and 2025 that have produced the big jump. But over that 5-year period, gold has produced cumulative returns of about 218% versus stocks. Stocks did extremely well in this period as well – we use the S&P 500 as a gauge, but it could be the TSX as well – stocks would have produced about 145%. So maybe 70% of what gold produced. So again, we’re in one of these periods where there’s a lot of glitter around gold just because of its recent performance. OK, so Marcelo, let’s talk about how gold can be used in portfolios. Or what are some of the ways that we hear gold being used in portfolios? And so, there’s two concepts we can discuss today. The All, Weather Portfolio by Ray Dalio, and one is called the Permanent Portfolio by Harry Browne. Both were, you know, kind of well known for their ability to kind of always produce decent returns and mitigate risk. And really their names describe what’s going on. An All Weather portfolio, you can handle all the storms, you can handle the good times and the bad times. But how does it work? What are the general concepts in these portfolios?

Marcelo: Yeah, so in Ray Dalio’s All Weather Portfolio, you will have an allocation of 7.5% to gold. When to Harry Browne’s permanent portfolio, you’ll have 25% in gold, and they both allocate about 50% to 55% in government bonds or short-term securities. So, what that does is you’re lowering, in terms of portfolio outcomes, you lower the volatility than the whole equities in the portfolio. You’ll have also less returns now because you have less volatility, you have more assets that are, are not that risky. So, if you look at a portfolio like that, the returns were about 7% annually, the S&P 500, just to use the gauge for stocks, returned about 10%. So that’s the trade off here, that you are having less risk in the portfolio, but you’re giving up on the returns in long periods.

Keith: Yeah. And we’re talking about these portfolios that are-they’ve become a little bit infamous in that they’ve got a bit of a reputation. You know, people speak to them as, well, this is why I should have gold in my portfolio, right? Because Ray Dalio suggests I should have 7.5%, and I’ve got this thing called the permanent portfolio that suggests as much as 25%. Now, what people don’t necessarily realize is just how hard how hard it is to hold these portfolios. So, you can have these portfolios where if gold is out of favor, boy, you’re holding not a very high producing portfolio for maybe a decade, maybe even longer. And people really have a hard time doing that. And secondly, they underestimate how much conservative assets they have. And that’s what keeps the volatility down.

Marcelo: Right. And then you have John Bogle’s perspective, which is the founder of Vanguard, one of the biggest financial firms, pioneers in the industry, pushing for passive investment that help a lot of investors. So, he said that gold has no internal rate of return. Going back to what we said before, it has no income. So, you can’t calculate an expected return. It’s not productive. He considered it speculative. So, he said that if you were to hold some gold in your portfolio, no more than 5%.

Keith: Yeah. And so, he would be one of the, I guess, the pioneers of holding index-based portfolios, globally diversified, very much in line with how we manage our client portfolios and how what we think is the best philosophy to maintain for long-term investors. So, it’s interesting to hear him saying it. Maximum 5% of a portfolio. Okay, so let’s move on here with one of the second to last topics, which is essentially, talking about gold, but how about the average Canadian who holds a diversified exposure either globally or to Canadian stocks? That person obviously holds gold.

Marcelo: Yes.

Keith: Because Canada’s got gold. How much gold is in the Canadian stock market right now?

Marcelo: Right, so if you look at the TSX right now, it holds about 13% in gold stocks. So, these are mining companies that produce gold and that’s their trade. Like, there are gold companies, right? They’re mining gold out of the ground and selling it and distributing it.

Keith: Okay, so stop. If you’re a Canadian investor now and all you own is a TSX, that means you’ve got 13% weighting in gold.

Marcelo: Exactly.

Keith: You already have all the gold that you would ever want to have in a portfolio just by owning Canada only.

Marcelo: Correct. So, you have Agnico Eagle, Barrick Gold, Kinross Gold. So, if you look at the TSX right now, so the Agnico Eagle represents about 1.7%, Barrick Gold represents about 2%, and Kinross Gold represents about 2.2% of the index.

Keith: Well, those numbers, Marcelo, was in the Dimensional Fund Advisor, but they would have a little bit more, but it’s the same concept.

Marcelo: Okay, perfect.

Keith: So, Canada, by its very nature, has exposure – the Canadian stock market has exposure to gold producers. Gold producers essentially are a leveraged play on gold. So, if gold prices go up, gold producers are considered to have levered play, be able to produce more profits per ounce of gold. So, it’s actually perhaps a more efficient way to hold gold.

Marcelo: Interesting.

Keith: But again, you need to have the appetite for taking on that risk.

Marcelo: 100%.

Keith: We would never suggest that anybody holds 100% Canadian equity. Usually in a portfolio, we would discuss sort of a third, a third, a third as a general benchmark, a third in Canada, a third in the United States, a third in international, perhaps a bit more in the US. Perhaps a bit less than the other two, Canada International. That said, if you do use a third, a third, a third, and the TSX is coming in about 13% or 14%, sounds like you’re already getting your 5% by holding just diversified Canadian equities within a globally diversified portfolio. And in our portfolios for our clients with the Dimensional strategies, with the tilts towards value and small, they would have held higher weightings to gold throughout the last 5 or 6, 7 years, which incidentally explains one of the reasons why those strategies have done so well and outperformed the TSX.

Marcelo: 100%.

Keith: Okay, so let’s sort of wrap up here with our version, our perspective on gold and what that means for our listeners, how we think they should think about gold and how its role should be within a diversified portfolio.

Marcelo: Correct. We have the core principles, so gold is not a productive asset. It’s a risky asset. There’s no positive expected real return. Doesn’t mean it can’t have positive returns, but this is just expected returns. It’s volatile and unpredictable. Also, long-term evidence, you know, often underperforms inflation over realistic horizons. So, investor appropriate time horizons. We’re not talking centuries, we’re talking 10, 20, 30 years. Then our philosophy is we put a high emphasis on diversification and discipline. We focus on productive assets. Again, equities, high quality bonds, and if gold is included, is the allocation will be modest. It will be used for diversification, not return chasing. And we understand that there are trade offs and are clearly outlined when we build diversified portfolios.

Keith: Fantastic. So, Marcelo, your final takeaway.

Marcelo: Final takeaway. Oof, I haven’t done one in a while, but I think I remind people of, especially our clients and many listeners that may be tuning into the podcast is I know it’s hard to stay in your seat when you hear people talking about, you know, the investments that have done great. But what tends to happen is if you’re hearing about it by people that you’re casually looking at or interacting with, it’s probably too late. And it probably will not be a good idea to get into it once the hype is already very high. So, if that’s the case, I say stay diversified, focus on what you can control, which is your saving rates, debt levels, uh, your long-term plan. And that’s it. I know I sound I don’t want to sound like a broken record.

Keith: Listen, it’s important to review these concepts. What’s fascinating about gold is it’s very different than some of the other sort of chasing fads that we saw, which you could basically say this is a chasing fad. It’s hard to tell people that gold is a chasing fad. It’s been around for thousands of years. So, for me, the takeaway is like, look, there is a framework, and a framework is based on evidence. And use the evidence so that you can kind of grasp how much you should include in a portfolio. And I’d argue you don’t need to include anything more than what’s already in Canadian equity, that’s a wonderful, you know, small amount of exposure. You have it. Besides that, is you prioritize things that work overtime. Nothing that sort of feels like it’s in vogue right now and you must have. So, Marcelolo, thank you so much for today’s episode. Welcome back. It’s been a few months. You partially also because you wrote your PlanFin.

Marcelo: Yes.

Keith: Your financial planning designation, which yourself, Reuben, and Jackson wrote, studied your buns off over 2 years. You wrote in December, and that’s one of the reasons why you sort of didn’t get a chance to jump in in the last little bit. So good luck with that. Thank you so much. And to our listeners, thank you for tuning in, and we’ll see you next time.

Marcelo: Thank you.

Keith: Thanks for listening to the Empowered Investor Podcast, brought to you by Tulett Matthews and Associates. If you’ve enjoyed today’s episode, be sure to follow or subscribe and share it with somebody who wants to invest with clarity and confidence. To learn more about how we help investors build lasting financial peace of mind, visit us at tma-invest.com. Until next time, stay informed, stay empowered, and stay on track to your financial goals. Investment and investing strategies should be evaluated based on your own objectives. Listeners of this podcast should use their best judgment and consult a financial expert prior to making any investment decisions based on the information found in this podcast. Podcast.