October 2025 Newsletter

Is Gold Gold as an Investment?

Gold is booming and our clients have questions

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Hello, everyone

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Several clients have recently asked us about Gold as an investment, so we decided it was timely to write a newsletter on the subject.

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Gold just had a massive run-up. If gold was a politician or a manager, we might vote for or hire them because of their great track record, should we do the same and invest in gold because of its track record?​​

Gold is quite different from other investments in a number of ways. One difference is that there is a strong millennia-old culture around gold with many people owning gold jewellery for its beauty but also as security as it is portable and can be easily sold. India is a good example.

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Gold is also either the only or the dominant physical security (investment) that central banks hold.

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Many people who cannot get a bank account or are among those whose banks closed their accounts against their wishes or live where there is political uncertainty hold gold in addition to cash as a store of value.

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One reason why investments in real estate are very popular is due to the tangible nature of property and it is similar with physical gold. It can be seen and touchedand purchased in physical form from a bullion dealer. It is also possible to invest in other related items such as ETFs (shares of an investment fund that are traded on stock exchange) that can be redeemed against physical gold and gold miners.

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Gold for some people is a partial substitute for investing in safe, income earning assets such as cash and bond despite the much higher volatility of the price of gold and despite gold not paying any dividends.

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Coming back to the recent run-up in the price of gold, when considering investing in gold, a great track record of rising prices is not necessarily a recommendation to invest at those higher prices as the price then has further to fall if there is a future slump as there has been in the past.

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One of the main reasons to buy something when it has become expensive, is fear of missing out, as, with such a great track record, prices are more likely to go up than down in future.

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There have actually been times when that was true.

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Shares in 1996 were massively overvalued but continued to rise until 2000 and only then came back to earth with a thud.

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US shares, especially tech shares have been going up and up and up and show no sign of slowing down. The Australian share market is also at record highs even though with its dominating finance companies (banks) and mining businesses it is quite a different market to the US share market.

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The point of the above is that there is no clear answer what to do next. There is no simple ‘if this then that’ strategy that succeeds in the short, medium and long term run.

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There is a very successful long term strategy of buy and hold and, if you are earningan income, to keep investing regardless of where the market is at in each moment but there is no guaranteed successful strategy that involves timing when to buy and sell shares.

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One reason we have had a lot of financial stability in Australia is because our superannuation contributions are invested by the super funds, come rain or shine, giving certainty and stability to many areas of finance.

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There are times when it makes sense to change strategies, such as times when there are fundamental changes happening. The big question, which everyone needs to answer for themselves, is whether we currently live in such times?

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Will we get vastly more prosperous because of AI and robots doing more and more work, generating wealth?

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That is quite possible but there is a sobering further point here: John Maynard Keynes a hundred years ago noticed that the world was generally getting richer and there was a clear trend despite all the turmoil that was also happening. He extrapolated that trend for a hundred years from 1925 to 2025, i.e. today and concluded that nobody will need to work today as there will be so much wealth available.

He was actually right in regards to the combined wealth of society but did not consider who would be getting richer. Most of that extra generated wealth went to a small group at the top, so everyone below that top still needs to work or receive ever more generous welfare which is a form of not needing to work though with only very limited means.

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There is another, darker view today that governments are massively increasing energy costs due to climate change opinions (have you noticed electricity prices are eight times what they were 30 years ago?) while at the same time keeping those voters who vote with their wallet, which is retired people and those on welfare, happy.

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There is therefore, in Europe and Australia, a diminishing pie which is shown by Australia having grown poorer on a per-person basis for the last few years (overall GDP is still up due to large amounts of migration) but the bulk of government spending cannot be easily reduced.

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That then leaves either raising taxes on the rest of us which often doesn’t work as people change their behaviour and the government can end up with less money, or for governments to borrow lots of money which they have been doing since Peter Costello stopped being treasurer. That approach is hitting limits in Europe and

Japan and will soon do so in Australia. The next stage then is printing money, inflation.

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If we can expect another large bout of inflation as we recently had, then the best protections are threefold:

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• Investing in shares as companies don’t lose much value, i.e. keep their value,vwhen there is inflation

• Investing in a type of bonds, so-called floating rate notes, that do not lose or gain value, except for a tiny bit, when interest rates go up or down. This is different to normal (fixed-rate) bonds that go up in value when interest rates go down and vice versa. Investing in these floating rate bonds as part of the defensive area of a portfolio allows you to ignore interest rates and inflation but you lose out on capital gains when interest rates are falling.

• Gold, as gold is strictly limited in its supply and mining of asteroids for gold is still some time away if ever to happen.

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So should I buy gold?