Because gold has been used as currency, in jewelry, and in other applications for centuries, people sometimes don’t realize the precious metal has such a strong price performance record, according to Kevin DeMeritt, founder and chairman of the Los Angeles-based precious metals firm Lear Capital.
“One of the biggest misconceptions is that gold is this relic,” DeMeritt says. “Gold has dramatically outproduced the stock market, and no one really talks about it.”
Unlike stocks, which can rise and fall due to factors such as inflation, gold has tended to perform steadily, or even increase, over time.
During the longest inflationary period to date in the U.S., from April 1973 to October 1982, for example, as the National Mining Association’s records show, gold’s value rose from $193.40 per ounce to $376.
When, during the Great Recession, the Dow Jones Industrial Average declined in March 2009, having shed more than 51% from its 2007 peak, according to the Federal Reserve Bank of Atlanta, gold actually increased — ultimately rising by approximately 50% from 2007 to 2009, according to a CME Group analysis. Gold has risen by 28%, on average, in six of the past eight recessions in the U.S.
“Gold has an inverse relationship to stocks and other types of assets,” Kevin DeMeritt says. “The volatility of gold is not going to be the same as other investments. It’s typically going to give you more stability. It’s a great diversification tool.”
A Growing Call for Silver
Silver, too, has historically fared fairly well during economically challenging periods. Silver prices have often generally increased — at times even more than gold’s.
In 1980, for example, although the U.S. was experiencing a difficult inflationary period, gold’s price rose 147%, according to a Lear Capital analysis — and silver’s price soared 557%.
“Gold [is] more talked about simply [because] throughout 5,000 years worth of history, gold has been some form of money — and today, central banks don’t hold silver; they hold gold,” Kevin DeMeritt said in an interview with Enterprise Radio. “But the advantages of silver today are starting to outweigh gold simply because gold’s really not an industrial asset. It is used for some electronics … but the industrial uses [of silver] are just going through the roof.”
In recent years, silver’s industrial applications have significantly contributed to the demand for the precious metal. As of 2019, the majority of silver applications in the U.S. — 30% — were electrical or electronic, according to the USGS Mineral Commodity Summaries guide.
With the current emphasis on using clean energy — the majority of Americans want the United States to focus on developing renewable sources such as wind and solar power to become carbon-neutral by 2050, according to a Pew Research Center survey — the need for silver, which plays a key role in solar photovoltaic power, could continue to increase.
“You really can’t have solar without some silver in those panels,” Kevin DeMeritt says. “Because there’s this drive for green energy around the world, solar has grown. I don’t think solar [power use] is going away. You have the industrial side of the market that’s starting to increase — and then you have the investment side of the market that’s also starting to look very, very good.”
As a result, the interest in silver may expand considerably this year. The nonprofit Silver Institute has projected the global demand for silver could reach 1.2 billion ounces this year, which the organization says would be the second-highest level on record.
“There’s going to be a demand for silver,” Kevin DeMeritt says, “regardless if investors purchase it or not.”
Owning Gold
While industrial applications may not have as significant an influence on gold demand, the interest in the precious metal has certainly not been weak this year, as evidenced by the recent string of new price records.
On March 21, gold reached $2,222 per ounce, a new high, according to The Wall Street Journal; just two weeks later, on April 4, CNBC reported gold prices rose to $2,300. On April 12, gold again surged higher, reaching more than $2,400 an ounce, according to Yahoo Finance. Gold’s price has, in fact, risen 28% since October 2023, according to CBS News.
Gold, Kevin DeMeritt says, is sometimes viewed as a safe haven asset when we experience things that can make investors concerned, such as recessions, market volatility, and war.
“Precious metals [can help serve as] a hedge against some of that economic uncertainty,” the Lear Capital founder says.
In addition to buying coins or bars, you can invest in gold through an exchange-traded fund or by purchasing a mining company’s stock. However, those options differ somewhat from possessing physical gold assets, according to Kevin DeMeritt.
“You’ve got all these third-party risks when you own [gold] stock or an exchange-traded fund,” he says. “Mining stocks take on a little bit too much debt, interest rates go up, their earnings crash because they have to pay all this interest, and it has nothing to do with the price of gold — it has to do with accumulating too much debt, and now I’m paying for it because I own the gold stock, as opposed to the actual gold.”
Some of Lear Capital’s customers, DeMeritt says, have mentioned they appreciate the tangibility physical gold and silver assets can provide.
“What are the central banks holding?” he says. “Gold. Because they understand paper and the digital [currency] could potentially go away; it has in the past. They need something that’s worth value. When you’re holding it physically, it’s yours.”
