Long-Term Returns of Gold, Stocks and US Treasuries

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The long-term returns of gold, stocks and US Treasuries are shown in the table below. Just like other assets, gold also outperformed other assets in some periods while under-performing in others. Overall gold has increased from $40 per ounce at the end of 1970 to $1,887.60 at the end of 2020, for an compound annual return of more than 8% according to a report by The Perth Mint of Australia.

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Source: The case for gold: A special report for institutionally managed superannuation funds, The Perth Mint

From an investment point of view, gold has low correlation to stocks as the above table shows. Hence investors can allocate a small portion of their portfolio assets to gold.

Related ETFs:

  • SPDR Gold Trust ETF (GLD)
  • SPDR S&P 500 ETF (SPY)
  • iShares TIPS Bond ETF (TIP)

Disclosure: No positions

Automotive Supply Chain Networks Could Shrink With The Shift To Electric Vehicles

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The automotive industry is projected to see major changes in the year leading to 2030 as the world moves away from internal combustion engine vehicles to electric vehicles (EVs) according to the World Investment Report 2020 published by UNCTAD. Today the auto industry is a highly complex industry with many Original Equipment Manufacturers (OEMs) and multiple layers of suppliers spread across many countries. Thousands of auto parts companies exist whose only purpose is to supply the parts – which include everything from car seats to batteries to park plus and everything in between – they make to the auto makers. In a way auto makers can be called as auto assemblers since they just buy a bunch of parts and assemble them together like putting together a puzzle or a Lego toy. With that said, below are a efew interesting facts:

  • 15 countries in the world are major auto hubs today accounting for 88 percent of the global auto production in 2018.
  • The drivetrain for an internal combustion engine has more than 2,000 parts while EVs have only 20.
  • The value added are concentrated in just a few parts with the battery in EVs accounting for about 40 percent of the total cost of the vehicle. Hence EV supply chains tend to be fewer.
  • For example, EV maker Tesla has only 300 suppliers spread across a few countries against thousands of suppliers for a traditional automaker.
  • High concentration of value added around battery producers and software providers will also reduce geographic spread.
  • While the global auto supply chain is spread over many countries today, the emergence of EVs would lead to newer infrastructure for EVs and other related economic activities.

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Source: World Investment Report 2020 – International Production Beyond the Pandemic, UNCTAD

Related stocks:

Disclosure: No positions

Bull and Bear Market Cycles for Gold from 1970 to 2016

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The average bull and bear market lengths for gold are 63 and 44 months respectively for the period from 1970 to 2016 according to a report by World Gold Council. The table below shows the bull and bear market cycles and the corresponding returns.

Gold closed at $1,789.10 on November 24th in New York per Kitco.

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Source: The case for gold: A special report for institutionally managed superannuation funds, The Perth Mint

The Perth Mint report notes that gold needs to trade at about $5,000 per ounce during this current bull market cycle that started in December, 2015. It remains to be seen if gold can reach that levels in the coming months or years.

Related ETF:

  • SPDR Gold Trust ETF (GLD)

Disclosure: No positions

S&P 500 Calendar Year Returns vs. Intra-Year Returns: Chart

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I have written many times over the years that “time in the market” is more important than “timing the market”. This is because equity markets tend to overdo on either directions. That is markets overshoot during bull markets to astronomical levels only to decline dramatically at some point to great depths. In both directions, investors euphoria and fear drive stock prices to above-normal levels.

The classic example of this scenario played out last year in the US markets. In March, 2020 equities crashed as the pandemic began causing panic among investors. During the course of the next few months the S&P 500 fell by 34%. Any investor that panicked and sold at the trough would have lost big as markets turned swiftly and ended the year with a positive return of 16%.

The following chart shows the calendar year returns and the intra-year maximum declines for the S&P 500 price index from 1980 to 2020:

 

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Source: Principles of Long-Term Investing Resilience, MFS

Even during the Global Financial Crisis (GFC) of 2008-09, S&P 500 collapsed by about 50% by the return for the year was a loss of 38%. In the following year, the index shot up by 23%.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No positions