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Gold Broke $2,000, Bitcoin Passed $11,000, NASDAQ and Bonds At All-Time Highs – What Can Go Wrong?

Alvin Chow
Alvin Chow

Investing in 2020 looks easy in hindsight – almost everything is up and smashing the records.

Gold

Gold has reached its highest price in history, breaking the US$2,000/oz barrier.

Many reasoned that it was due to the massive liquidity pumped into the markets by the Fed, resulting in a depreciating US dollar. Investors are hedging a weakening USD by buying gold and prices were bidded up.

It’s tempting to want a piece of gold when you look at the returns in the table below.

You would have made 14% if you bought gold just a month ago. A 6x return if you have bought and held it for 20 years.

I think the only worst time you could have bought was in 2011 where the gold price was just shy of US$1,900. Even so, you are still up 5%.

Would gold go up further? Should you buy gold?

I realised that people are only interested to invest because something has gone up in price. It applies to gold now. People are jumping onto the gold bandwagon purely for the hope that the prices will go even higher. It’s only when they are pushed for a reason that they come up with an idea they believe in – the Fed etc.

The prudent thing I can say is not to speculate the price movements. But I know that won’t work. So I am going to say take a bit of your money and punt. Have some fun but make sure losses won’t kill you. Of course, my best wishes are with you, I hope you will win.

Silver

Silver is known as the poor man’s gold. It has done very well in 2020, hitting a 5 year high of US$27.

It has seen a 100% gain in 4 months, since Covid-19 struck.

But silver has not broke the all time high of US$49.45. Maybe not yet.

Nonetheless, the performance has been stellar, even better than gold in the short term – it gained 48% in the last 1 month compared to 14% for gold over the same period.

Bitcoin

After crashing from a high of US$20,000 in 2017, the interest for Bitcoin is now back. It has recovered more than half of its losses and the price is over $11,000.

Bitcoin is a hedge against a weakening USD, very much like gold. In fact, Bitcoin is the new gold. JPMorgan found that old investors prefer gold while the younger ones prefer Bitcoin.

NASDAQ

Tech stocks have been relentless. Nothing seems to be able to stop them now. NASDAQ Composite Index broke a new high once again.

You can see from the chart below, the price increment is getting parabolic. It should have legs to go up more but such price moves are very unsustainable and susceptible to sudden huge price collapses.

The hottest tech stock keeps shifting.

Currently, the hot favorite seems to be Sea (NYSE: SE). Bloomberg mentioned Sea has gained 880% in the last 18 months, beating America’s Tesla and FAANG stocks by a mile. Sea is a Singapore company and what a great birthday present in time for our National Day!

I have already mentioned about the glove makers previously; one of them had gained more than 1,000%. The rush for these stocks has never abated after I have written about them. The stock prices don’t seem to be resting at all.

Top Glove Price Chart

Bonds

Very few people are interested in bonds which are often viewed as boring and safe instruments. They’re only desired when the market is in turmoil.

But you might be surprised to see that the bonds have been kicking ass too – US long term bonds gained 24% year-to-date compared to S&P 500 with just 2% gain this year.

In fact, New York Times ran a check and found that long term bonds have beaten stock market returns in the last 20 years (2000 to 29 Apr 2020).

Once again, we can blame (or praise) the loose monetary policy adopted by the Fed. Bonds have an inverse relationship with interest rates. And since the Fed has been cutting interest rates, bond prices have benefited too.

Permanent Portfolio

I wrote a book about a simple all-weather portfolio – the Permanent Portfolio. People criticised it for its meager returns but most missed the point. The true purpose of the Permanent Portfolio is to minimise volatility. It has done well in that aspect but this year even it began to deliver higher than normal returns because everything went up – stocks, bonds and gold.

We must understand that it is not sustainable for everything to be up in the Permanent Portfolio persistently. The mean reversion principle is telling me that the only remaining asset in the Permanent Portfolio, cash, is going to provide the safety when everything else falls apart.

I know we keep saying ‘this time is different‘ because the Fed’s actions are unprecedented and things are okay as long as they keep printing money.

Nobody will know the consequences precisely because it is unprecedented.

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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