Is it too late to add gold to your 401(k)?

By Brett Arends

It's $4,000 an ounce, and everyone seems to want it

Most ordinary investors have missed the gold boom.

It's 14 years almost to the day since a prominent New York businessman said booming gold prices were a sign of collapsing faith in the U.S. currency and the U.S. economy, and the result of a terrible presidential administration in Washington, D.C.

"It's a sad day when a large property owner starts accepting gold instead of the dollar," he said. "The economy is bad, and Obama's not protecting the dollar at all. ... If I do this, other people are going to start doing it, and maybe we'll see some changes."

The businessman? Er ... Donald J. Trump.

Gold peaked back then, during the first term of President Barack Obama, at around $2,000 an ounce - actually, it peaked at pretty much the moment Trump made his comments - something that we at MarketWatch warned might happen.

Now Trump is president, and gold just hit $4,000 an ounce, an all-time high. It has risen by 50% since last year's presidential election and by just under 50% since the inauguration.

Is gold making the same judgment of President Trump that businessman Trump said it was making of President Obama? You make the call.

Meanwhile, investors watching the price rocket higher face a conundrum.

Should you buy gold at $4,000 an ounce? Should you sell?

Has it risen too far? Does it have further to go?

And, maybe: Should you have any gold in your 401(k) or retirement portfolio at all?

The answer to all of the first four questions, of course, is "yes!" There is no reliable way of valuing gold, and the more I've talked to professionals in the field, the more certain I am that you can make a convincing argument for almost any valuation, from that $250 low to the $10,000 or higher that gold enthusiasts talk about. Very intelligent, well-informed people can and do make almost any argument. Trying to value it is pointless.

But the answer to the final question - should you have any gold in your 401(k) or retirement portfolio at all? - is pretty simple. The answer, surprisingly, is yes, almost certainly.

It's surprising because most people on Wall Street, and most financial professionals and advisers across the country, still view gold as a niche, oddball investment.

Maybe it should be. But it isn't.

Since the U.S. came off the gold standard in 1974, gold has proven a better investment than mainstream U.S. Treasury notes and Treasury bills. The total return on gold since the start of 1974 has been about 3,400%, compared with 2,000% for the 10-year Treasury BX: TMUBMUSD10Y.

And that's not just because of gold's recent surge. During that half-century, gold has beaten 10-year Treasurys in half of all five-year periods and in 44% of all 10-year periods. It has beaten Treasury bills over five- and 10-year periods more than half the time.

But it is standard for investment portfolios to include bonds - lots of bonds - and no gold at all. The regular benchmark portfolio consists of 60% stocks and 40% bonds. Warren Buffett has instructed his estate to move his wealth, after he dies, into a portfolio of 90% U.S. stocks - an S&P 500 SPX index fund such as the one run by Vanguard - and 10% U.S. Treasury bills. But a portfolio of 90% stocks and 10% gold would have performed better over time, and maybe it will continue to do so.

This attitude has done the investing public no favors at all. The numbers show the depressing story for the retail public: They typically buy gold only once it's already risen, and they sell it again after it has fallen.

They are buying now.

According to the World Gold Council, record sums are pouring into gold bullion exchange-traded funds, such as the State Street Gold Trust GLD, which are the simplest way for ordinary investors to have gold in their portfolios. Global fund buying hit a record $26 billion in the third quarter, mainly led by investors across North America. Actually, about two-fifths of all the global buying of gold ETFs over the entire third quarter came from U.S. and other North American investors just in the month of September. This was the fourth month of net buying by North American investors. Total ETF holdings worldwide are over 3,800 metric tons, poised to overtake the pandemic-era record.

So far this millennium, gold has fallen to as low as $250 an ounce, rocketed to nearly $2,000, collapsed again to just over $1,000 an ounce and is now above $4,000. Predictably, the public has bought after it's risen and sold after it's fallen.

I sincerely hope that MarketWatch readers have avoided being on the wrong side of this whipsaw. (That is why we're here.) Thanks in part to Trump's comments in 2011, we were able to warn you about the risks at the last peak. And since the bear market bottomed out in 2016, we've pointed out all the reasons why you would want to own some gold - at around $1,100 an ounce, and $1,500, and $1,800, and $2,000.

It's been clear for a long time that the U.S. political system is broken, that deficits are out of control, and that while U.S. hegemony is in decline, the only credible alternative global currencies to the dollar are the euro and gold.

My job involves talking to lots of fund managers, some of whom actually know what they are doing. The most convincing single approach to gold I've ever heard has been from Doug Ramsey, the chief investment strategist at Leuthold Group in Minneapolis. He's long been running a notional portfolio he calls "All Asset No Authority," which I've written about before and which consists of equal investments in seven different asset classes, one of which is gold bullion.

The key insights here are twofold. It includes some gold, alongside bonds. And the percentage of gold in the portfolio is always fixed at 1/7 - or, if you are pedantic, 14.29%.

Whether the current gold boom has much further to run is an open question. Intuitively, it signals that ominous signs of euphoria are all around. Of course, as with all booms, there is a plausible rationale to justify the high prices. But as everyone is buying, and the price has just gone through the roof, don't be shocked if there's soon a sharp move down.

But for the ordinary investor there is better, simpler advice: Gold should be viewed as an alternative to Treasury bills and bonds, not to stocks. A long-term passive portfolio should include some gold alongside bonds. Decide the appropriate percentage in advance, whether it be 5%, 10%, 15% or whatever. Buy it. Hold it. And only "trade" it occasionally to rebalance - in other words, to keep the same percentage.

As a result, when it goes down, you will be buying more at cheaper prices, and when it goes up, you will be selling at higher prices. If you had done that, you'd have bought 10 years ago at $1,100 an ounce, when nobody wanted it, and you'd be cashing in some profits now, at $4,000, when suddenly everybody wants it.

Right now everyone seems to want gold, and - notably - almost nobody seems to want bonds. The sensible long-term investor wants both.

-Brett Arends

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-09-25 1056ET