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Time to buy gold? As the legendary metal nears all-time highs – and headlines project more of the same ahead – it may seem intriguing. But beware: Gold is more volatile than stocks, with lower long-term returns than bonds. It requires impeccable market timing – otherwise, it is a drag. If you can’t time stocks, which rise far more often than fall, don’t try gold. Consider these facts dulling gold’s glitter.

Its appeal parallels its 11.2-per-cent rise in Canadian dollars through mid-May in 2023, pushing it back to near US$2,000 per ounce. With recent bank failures, 2022′s global bear market and stubborn inflation fanning fears, many see it as an alluring “safe haven.”

But before buying anything, understand how it behaves. Gold is a commodity, with no earnings, adaptability or dividends. Since 1974, when the gold standard’s last gasps vanished, it has annualized 5-per-cent gains in U.S. dollars – 6.5 per cent in Canadian dollars. Sound good? Note that Canadian stocks annualized 9.2 per cent over that span. The S&P 500 Index annualized 11.9 per cent. Moreover, Canadian and U.S. 10-year government bonds both beat gold, annualizing 7.4 per cent and 6.7 per cent, respectively.

Gold’s low returns might make sense if it offered low volatility. It doesn’t. Consider one-year standard deviations in U.S. dollars – measuring yearly return volatility around their longer-term averages. U.S. bonds’ standard deviation, as expected, is low – just 8.3 per cent. Famously volatile U.S. stocks’ standard deviation is, unsurprisingly, 15.2 per cent. But gold’s is highest – 18.6 per cent.

Low returns with high volatility display a stark truth: To glitter with gold, market timing is key. Gold’s gains can run big – but are sporadic, with long periods of stagnation and whopping declines between. Consider the pop above US$2,000 in early May. Nearing its August, 2020, peak of US$2,067, gold is only now, 33 months later, almost flat. U.S. stocks are up 28.6 per cent since then – despite 2022′s bear market. Canadian stocks are up 34.3 per cent since then in Canadian dollars.

Consider starker examples. After a late-1970s boom, gold peaked at US$850 on Jan. 21, 1980. It next got that high on Jan. 3, 2008 – almost 28 years later. Could you hang on that long? No. But, oh, no … first it dropped 65 per cent over two years, gained 72 per cent in eight months, fell 44 per cent in two years, then rose 76 per cent over two more years … before falling 49 per cent over the 12 years to July, 1999′s low. How many ways can you say volatile?

The next boom pushed gold’s record high to US$1,895 in September, 2011. Analysts swore more upside remained, especially with eurozone sovereign debt and banking fear exploding, while Canada endured a bear market amid a deep global stock market correction and paralleling the 2011 U.S. debt-ceiling crisis (ring any bells?). But, no … Gold dropped 44 per cent through 2015′s low. It didn’t see $1,895 again until July, 2020. If you can time that volatility, chuck this column – you need no advice from me about anything. But most can’t. Instead, they buy gold high and sell low after enduring frustration.

Timing is tricky. Gold’s returns were positive in just over half of rolling 12-month periods since 1974. Canadian and U.S. stocks rose in 73 per cent and 81 per cent, respectively. Hence, even if you can’t time stocks well, they work in your favour longer term. Gold is a coin flip. Its fluctuations stem mostly from sentiment swings, which defy timing.

So, why does gold appeal? For some, it is those recent glittery returns. But chasing heat is always a bad reason to buy anything. Some say it is about inflation or hedging stock downturns.

But 2022 disproves both those rationales. Gold initially climbed after Russia invaded Ukraine. But it plummeted after about two weeks, falling alongside stocks to a slightly later bottom. Both gold and Canadian stocks are up big since July, 2022, lows, with the yellow metal rising more. But forget that as any kind of hedge. The direction is key. No real hedge moves parallel to what it hedges.

Finally, rethink gold’s long, profitless periods. Canadian inflation wasn’t flat or negative during any of those stretches. Gold lost purchasing power – it didn’t protect against all that inflation.

What about gold stocks, like those comprising almost 7 per cent of Canada’s market? They may offer dividends, while adding capitalism’s magic. But as a group they are, again, more volatile than broader markets, typically rise most in early equity bull markets and typically act like smaller value stocks. All the more reason for Canadians to invest globally.

If you can time gold, more power to you. You don’t need my columns. But for most investors, stocks and bonds function better.

Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments.

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