It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy has some thinking gold’s heyday is over.
As I often say, investing, like life, is about managing expectations – even throughout gold’s decade-long rise, price action over the short term can go both ways. It helps to look at what happens after short-term drops. For example, looking at the past decade of one-day 5% declines in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5% in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.
The 1.7% drop experienced over the past month shouldn’t surprise gold investors given the seasonal pattern for gold. Whereas gold rises nearly 2% in both January and February, over the past 11 years, it’s been a non-event for gold to correct in March.
In addition, it’s a good reminder that bullion has historically been less volatile than the stock market: the 12-month rolling volatility over the past 10 years for gold was 13%. For the S&P 500 Index, the 12-month rolling volatility over the same period was 19%.