Why no Asset Class can Outperform Gold over Time

Contrary to popular belief, gold has never lost its status as money. It is still the most reliable unit of account when it comes to measuring how well an investment portfolio is doing. This is a central point in my book, Gold Oriented Investing. Rather than using currencies to measure performance, we should use gold. Only when we beat the gold price can we say that we did well. Consequently, when the chances of beating the gold price are low, gold is where we should store our wealth.

Thousands of years of history has shown us that the value of gold can deviate from its mean by a lot, yet always return to this mean over time. As investors, all we have to do is to calculate where we are relative to the mean, and make our decisions based on this. An example of this on my part is the house I sold in Norway two years ago. It was sold close to an historic top relative to gold. In the two years that followed, I made 40% more on my gold investment than I would have made on my house. Including taxes and fixed expenses related to the house, my gain has been even greater.

But why exactly does the gold price behave in this manner? The answer to this becomes clear when we consider the physical demand for gold in the production of jewelry. This demand sets a minimum price for gold relative to the cost of all other assets, including food and housing. There also has to be a maximum price at which point all physical demand disappears. From this we know that gold prices can only fluctuate within a band of relative prices. When the gold price tags the bottom line of this band, we can safely buy gold as it cannot go farther down, at least not for long. Conversely, gold tagging the upper line of the band cannot continue to rise. We must then buy real-estate or stocks.

By PinkAechFas - Own work, CC BY-SA 4.0, Link