Gold Hits New Record High and Emotional Investors Get Sucked In

Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler, talking money and investing, and the discussions of the week, the things that people are talking about out there as well. Yeah.

There are a few things that I want to cover, a couple of topics that I’ve hit before. Always bears repeating because you just never know when there are people that are going to be listening that haven’t heard before.

And maybe people that you talk to out there, you just want to send segments along to them. By all means, you won’t hurt my feelings if you send a segment that I’ve done off to a friend just to help them out. And the way you do that, you can go to paulwinkler.com, and you can get them on the podcast there, and that’s how you can do that.

Determining the Worth of a Commodity

One of the topics of conversation in the middle of the week was this. It was talking about gold. Gold prices. And something that comes up quite often here on the show is gold as an investment.

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It’s not an investment that I would be putting money into for any kind of purpose of retirement planning or putting money away for the future. 

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Because it isn’t an investment as an academic would call it. And I say academic, there are some that might say that.

There are some people in the education system that might say that it’s an investment. The ones that I respect, let me just put it that way, would not call it that.

Because there’s no cost of capital. If I look at something like gold or I look at Bitcoin, or I look at any kind of commodity, I would have to look at it and go, Well, what’s it worth?

And I would have to ask myself, Well, how do I determine its worth? And typically, the way you do that with a CD, a piece of real estate, a company or whatever, you determine its worth by looking at the present value of the future income that will come in from that particular investment.

Now, if I know that I have something that’s going to pay $4,000 every single year — and let’s just imagine that interest rates don’t change or anything like that, just to keep this really simple— and I’m saying, “Well, I’ve got this thing, it kicks off $4,000 per year, it pays 4%,” what’s it worth?

And the answer would be, $100,000. That’s pretty easy. It’s just basic math.

If I know I have a piece of real estate that is an example that kicks off, let’s say that the rent on it net after all expenses is about $14,000 a year, and I know that real estate is somewhere in the neighborhood of a 7% yield after all expenses, then I would tell you that that piece of real estate’s worth about $200,000. I can put a number on it.

If I’m looking at a stock, it’s a little bit more complicated. Not that real estate isn’t complicated. But you’re dealing with something that has earnings that go up and down and they fluctuate, and they typically tend to grow over time by at least the inflation rate plus any kind of growth in the company.

Estimating Future Earnings

But we’re looking at the valuation of a company, I’m looking at the stream of income that’s going to be coming in for the next however many years, which will include retained earnings and dividends, both of those things. And I’m looking at that stream of income and trying to figure out, well, what is it going to be?

And it’s very, very hard to tell exactly what the earnings are going to be past one or two years, really. But we can kind of figure out what they’re going to be and get an estimate, and just assume that maybe the earnings are probably not going to drop through the floor or anything like that, or they’re not going to necessarily skyrocket.

That’s why you don’t really know which stocks to buy and which ones are going to be better than others, because you’re really looking through a glass dimly. You really don’t know what those earnings are going to be.

You can guess, but you’re looking at competition. You’re looking at how different companies are going to be coming up with technology to compete against the company that you’re wanting to buy and think is such a great company. There are a lot of variables.

You’re looking at whether the CEO is going to be around a year or two years from now. You just don’t really know. You don’t know if they’re going to leave.

You don’t know if the company is going to be bought out. You don’t know if regulations are going to come up that are going to actually hurt the company.

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That’s why we diversify so much when it comes to stocks, because there are just too many unknowns. 

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When we look at it, though, we can sort of figure out what it’s likely worth. Now, if I’m looking at entire markets, I know that if one company runs into hard times, another company that competes against it may actually benefit from their competitor going under. That’s, again, why we diversify.

But then what we can do is we can look at the overall market. Now, if we look at, let’s say for example, the entire market of huge U.S. companies, and well, as a whole, if we take all of those companies, we aggregate them, and we take all of their aggregated earnings, just put them all together.

And then we look at what their value is on paper out there as an operating organization. And we can look back through history and say that, yeah, typically they sell for about 16 times earnings.

If I’m looking at value companies, they sell for about 10 times earnings. When we’re looking at commodities, however, and we’re looking at paper on what they’re worth, we’re just going, what are the earnings? What’s the interest?

What are the rent payments? There aren’t. None of those numbers we have … there is no such thing as those numbers on any of these commodities.

Then we look at it and say, “Well, what’s it worth?” Well, it’s whatever you’ll pay for it, is typically the way I like to explain that.

Gold Hit $4,000 an Ounce

This was a topic of conversation because gold hit $4,000 an ounce. And this is what they were saying on the financial channels. Just let me check this out.

Clip: Along with this market action, you can’t take your eye off of gold hitting 4,000 for the first time ever today, and currently sitting just a few dollars above that. Jim Goldman takes their forecast for year-end ’26 to 4,900.

PW: They’re guessing it’s going to go up even more. But what we know about big companies and their ability to forecast the future, it’s not so great. When we look at economists just trying to predict the interest rate direction, they’re abysmally bad at it. You’ve got a 50/50 shot.

Are interest rates going up? They’re going to go down. The reason I bring up economists is because who do these companies hire to try to figure out what something is going to be worth? They hire economists.

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These people can’t even predict interest rate direction when they’ve got a 50/50 shot, let alone what the price of gold is going to be going forward. 

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It’s just comical.

Clip: You said people are missing about gold, and this is something you get when you speak to Agnico Eagle is that we’re having a hard trouble finding gold.

PW: “They’re missing this about gold.” Now, number one, it’s like, “Oh, nobody knows the information I’m about to talk about. Nobody knows this.”

No, everybody knows this information. Anybody that follows it, anyway, knows this type of information. It’s not like a big secret, what he’s about to tell you.

And you look at it and go, well, maybe that’s why gold went up. What he’s about to tell you is this. And I’m going to continue on, so don’t check out on me on this one. I want you to hear the rest of what I’ve got to say about this.

Clip: Only a few places left. And when you go to areas like where Barrick went to in Africa, and you have some of your teammates kidnapped and you have to pay ransom, think about what you have to do with the Grasberg mine in Freeport.

You come back and say, “Listen, it’s safe.” That’s in Indonesia.

What happens ultimately is you say, “Wow, I can only really find gold in Canada and the United States without any problem.” Which is Agnico. And then you put it in the other side, the demand side, that’s how Costco can’t find any, and Costco is one of the largest buyers in the world of anything.

PW: Yeah. Number one, and I apologize for all the noise in that segment, but they’re in the trading markets in New York City as they’re broadcasting this. But basically what he’s saying is that we can’t find the supply, it’s not increasing as much as it has.

Gold Shortage

Now, you may have heard me say this before, that the amount of gold has increased by 50% since the 1970s. The amount of gold that’s out there to be found.

Now, one of the things that we haven’t really done a whole lot of is look at areas that are a little bit harder to get to. But the price of gold goes up enough, and we will find ways to get to these places where it’s a little harder to get to.

Maybe in the short run, they’re not finding any of it, but if the price gets high enough, you can justify going and mining in places that are really, really difficult to get to. The bottom of the ocean floor, for example, or something like that.

But here’s the thing, is he’s saying that we don’t have it. In some of the places that you do have gold, you have political instability. And right now you do.

Would this be a possibility that political stability actually starts to come into some of these places because of maybe deals that are struck in order to get access to some of the gold? And could that be something that actually comes, it makes it all crumble down? Now, recognize this is all a very precarious situation as far as whether this is going to go up, it’s going to go down, or sideways or whatever.

But let’s continue on this. Costco, the reason he brought that up is because there is just an average regular person buying this stuff in Costco.

When I talk about the Great Depression, this was the Kennedy, the patriarch Kennedy literally said, “Oh, my gosh, there are people that are shining my shoes talking about stocks. It’s time to get out.”

And that’s when Kennedy literally got out of the stock market just before it crashed in 1929, because he was hearing just the average regular person getting all excited about individual stocks and he recognized that maybe the handwriting was on the wall. But now we’re seeing that with gold, right?

Clip: We have a gold shortage. We do not … We maybe have a Bitcoin shortage.

Really hard to tell because there’s so many different … Crypto shortage, there’s so many different coins, maybe Bitcoin shortage.

But gold is hard to find right now. Hard to find. We’re just not finding big tracks.

PW: And the shortage only matters a hill of beans if there is demand.

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If there is no demand for something, it will come crumbling down just as fast, if not faster, than it went up. 

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Recognize that. What drives the price is simply demand, and I’m going to talk more about that in just a second, but let’s just keep going.

False Patterning

Clip: Demand side’s important too. You put up Ken Griffin’s comments from yesterday. He thinks investors are beginning to see it as safer than the dollar.

PW: Now, investors are seeing it as safer than the dollar. Well, we think about the dollar. It’s a currency that it’s basically used for everything all around the world, and there has been some political instability. I’m going to come back to that in a second, so just hang on regarding that.

But it is being seen as safer than the dollar. What always happens — I say always happens, it happens significantly throughout history — is that some certain markets go up for a while. In the late ‘90s you saw a lot of this.

You looked at two decades where you had the S&P 500 go up, fivefold in the 1980s. And then it went up again in the 1990s.

After that long of a period of time, or any extended period of time when you see a trend or you’ve seen something that’s been going on year after year after year, what we tend to do is we say to ourselves, “This is going to be like this forever. It’s just going to continue. This is the new paradigm. This is the new normal.”

You might hear that. “This is just the way things are now.” And we have a tendency to complete patterns in our mind.

If we see, maybe… I can’t even really go back to the caveman days and say, you see the woolly mammoth come out, and comes out to the water well every day at one o’clock in the afternoon, you figure maybe I’m not going out to the water well at one o’clock in the afternoon because the woolly mammoth is going to be coming any minute. And you see these patterns, and it’s great for survival when it comes to that.

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But what we do is we have false patterning. We look for patterns that don’t really exist. And we’ve always done this.

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There was really this joking analysis that was done in the late 1990s that I would talk about here on the show on a regular basis in the early days of this radio show. I would talk about the butter production in Bangladesh.

And somebody, some crazy person, decided they were going to study butter. They were looking for something that correlated with the S&P 500. Something that moved with it.

They were looking for a positive correlation. You see two things move together, that’s a positive correlation.

And they found this tremendous correlation between butter production and Bangladesh and the S&P 500. When the S&P would go up, butter production was going up at the same time.

And then butter production would come down and the S&P 500 would go down. This was done in the United Nations’ database. And they were looking at this going, “Wow.”

They weren’t doing it as something serious, though. I just want you to get this. It wasn’t serious analysis.

They were looking at it and just going, “Isn’t this funny? Butter production, Bangladesh, and the S&P 500 highly correlated. What else can we get people to believe?”

And it’s kind of like one of those things. What happened is we look at that and go, “Well, okay, that’s funny. Ha, ha. Yeah, that doesn’t make any sense.”

Why Is Gold Going Up?

But when it comes to assets like gold or Bitcoin, or stocks or whatever, we can come up with a cogent explanation as to why something moved with something else, and it can sound really convincing. Harry Dent was one of those guys that actually did this with demographics.

He said, “Hey, demographics are what drive the stock market. Look, people buy more things between the ages of 43 and 46 than any other time. Or in their mid-20s they buy a lot of things. And look at this, if we actually look at birthing peaks in the history of our country, we notice that if we add 43 to 46 years that it moves with the S&P 500.”

And you go, “Oh, wow, that makes a lot of sense. You’re onto something there.”

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Now, with gold, we’re looking at it and going, “Oh, well, we’re not increasing supply.” But there’s more to it than that. 

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They’re talking about, why is it going up? And that’s one of the things that they’re talking about here. And demand for people that don’t have a whole lot of money, they’re starting to look around and go, “Hey, look, I see this thing that has been going up and up and up, and it must be something that’s a new paradigm. And this is the way stuff works, gold just goes up and never goes down.”

Clip: I totally agree with Ken Griffith on this. I have been a big believer. I’ve been a huge buyer of gold and believer of gold. And I’ve been wrong. And I’m glad and gratified to see I’m no longer wrong is the way I want to look at it.

I don’t want to say I’m right, I’m just no longer wrong. Because I’ve been wrong for a long time with gold.

PW: Sorry, again, it is really loud. It’s the Opening Bell on Wall Street.

But notice what he said, “I’ve been wrong for a long time. I’ve been wrong, I’ve been wrong, I’ve been wrong.” And he goes, “Now I’m right.”

Well, wait a minute. How does that compute?

“I was wrong, I was wrong, I was wrong. I told you to not do this. I told you not to do it. And it went up and it went up, and I told you not to do it, and it went up. And all of a sudden, now that it’s high and I’ve bought it, now I’m right.”

How does that work? I don’t even know. This makes no sense to me. But it’s just comical when you look at that.

Gold Hit a Record

I’m going to take a quick break. And after I come back, I’m going to walk through a little bit of memory lane with you.

I want to walk through some of the history just so that you get a little bit of context regarding this whole talk about gold as an investment. History’s a guide. It doesn’t repeat, but it does tend to rhyme a lot.

And I want to just discuss that and talk about last time this kind of thing happened, what was driving it? We’ll do that right after this.

Okay, this whole thing, gold hit this record. And it’s just something that has gotten a lot of people talking out there, as they will on the internet.

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That’s how they operate, right? It is just like, what’s happening? What’s hitting records? And that’s what we’ve got to talk about.

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Now, have you heard anybody talk about international small-cap value or international value stocks, large companies or large international or emerging markets companies, or emerging markets value or small-cap emerging market, or large value U.S. stocks or small value U.S. stocks? Have you been hearing about those hitting records as fervently?

No, but they have. Now, does that mean that I need to just go and buy now because those things have been hitting records? This is the thing that a lot of investors get trapped in.

What they’ll do is they’ll hear, “Oh, this is hitting a record.” Or sometimes what they’ll do is to go the other direction. “It’s hitting records, it’s about to crash, it’s going to crash now. Oh, my goodness, the stock market’s had a record.”

And the thing I often point out to people is that back when the Dow was at 1,000, it was a record. And at some point, it hit 2,000, and that was a record. And at some point, it hit 3,000, and it was a record. And then it hit 4,000, and the Dow hit 5,000, it was a record.

And then it was 6,000. And it was 10,000, it was a record. It was 15,000, it was a record. Then it was 20,000, a record.

And then it went up to 35,000, and it was a record. And then it hit 40,000. It’s always hitting records is the point, right?

You look at that and go, “Gee, is it a good idea to go do this now that it hit a record?” And I’m like, “Well, no, not exactly, because it’s always hitting records.”

Concern About the U.S. Economy

But you’ll see there was an article in the Wall Street Journal, “Gold price hits 4,000 an ounce and a record-breaking climb continues.” And they were talking about how it hit 4,000, and now it’s for the very first time, and investors are rushing into alternative assets.

Why? Well, there was a concern about the outlook for the U.S. economy. That’s what they said in here. And the U.S.’s place in this world.

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People are worried about the U.S. economy, so it goes up versus the dollar. 

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And then the price of the precious metal has surged this year, rising 50%. Futures run up in 2025 outpaced rallies during the pandemic. And the 2007–09 recession.

And what are they blaming it on? It’s Trump’s attempt to reorder global trade. It’s buoyed prices.

Now, it’s a funny thing: I’ve known some people that actually said they were going to buy gold. And now they’re congratulating themselves, of course, right? Because, well, “I congratulate because the reality is everything is up.”

So you congratulate yourself for being in anything stock-related. But gold, these people just did everything. I think they did everything in gold. I’m not sure.

But it was funny, the reason they did it, the reason they invested was because they were afraid that Biden was going to be reelected. And they were afraid of what he was going to do. And isn’t it interesting that Trump gets elected, the person that they actually supported.

I don’t know if they’re still in it or not. I have no clue. I don’t talk to him. But I think it’s interesting that they actually wanted Trump to be elected, and now gold has gone up for a totally different reason.

It’s funny that you think that you’ve got a beat on what something is going to do. And in this particular case, it did go up, but not for the reason they expected. I just think that’s ironic.

And they were just talking about how part of it was that Powell had signaled that the Central Bank was going to begin cutting rates, and there was concern about whether the Fed had its independence. And it’s this perfect storm for gold.

History of Gold as an Investment

Okay, so let’s go back in history, shall we? And look back at the 1970s.

Now, gold hit its peak in, I think it was January, as I recall, of 1980. It hit a peak of 850 an ounce.

And what I did is I just said, “Hey, AI, give me the headlines about gold in the 1970s. Just give me some headlines, what was being talked about?” And you know what’s eerie? It’s pretty stinking close.

“Gold Price Soars at Record Pace in Wild Trading,” New York Times, September 19th, 1979. “Gold Rush Sweeps America,” New York Times, July 29th, 1980. This is in the 1980s, early 1980s as well.

“Gold Has Entered Its Third and Final Stage,” was something that was talked about … Oh, shoot, that’s a newer article. Wasn’t that funny? They were wrong.

That was a more recent article, but they were wrong. AI, I told you to give me stuff around the ‘80s. Oh, well, it kind of missed that one.

But it’s funny because they were wrong when they actually wrote this article that it was in its third and final stage. No, it wasn’t. It actually went up from when this article was written.

And then they were talking about how “you were wrong about gold being declared dead.” Let’s look at other ones. “What’s Behind the Gold Rush?” This is in 1978.

Okay, AI gave me the right time period this time. A look at history, a look ahead.

“Gold Jumps as the Dollar Falls.” Oh, wait a minute. There you go. Worry about whether the U.S. would hold the supremacy in the world marketplace.

This is, again, it tells you it was the same thing back in the late 1970s. Inflation hedge or speculative bubble was a question being asked in the late 1970s in Businessweek.

Now, I remember Businessweek had an article called “The Death of Equities,” and it was talking about how people were actually ditching regular stocks for gold.

And the point that we make in the very first workshop we teach on this particular topic is how gold went through the 1980s, and just dismal, awful, bad. Where stocks did the opposite.

And yet that’s what people were doing is going and chasing a piece of metal. Analysts divided on gold sustained rally.

Here’s another interesting headline. “Gold Prices Surge Amidst Middle East Turmoil.” Again, what is it? Political turmoil.

Let’s see. Let’s view the volatile years. “Investor Interest in Gold Bullion Soars.” This was written in the late ‘70s again. And of course, just before it crashed, right?

“Gold’s Performance in the Era of Stagflation.” Of course, the 1970s had stagflation, the idea of a stagnant economy with inflation. “How To Invest in Gold.” There were numerous book titles about how to invest in gold at that particular point in time.

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Recognize that history doesn’t repeat, but it rhymes. Do you know when it’s going to happen?

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Like I just said, there was a headline that said that it’s going to come to an end, it’s going to come crashing down, and it didn’t.

Fear of Missing Out

But recognize that these things, these types of headlines and this type of hype, tend to go on and on when it comes down to gold or other investments. The media will get you all excited about these types of things. And you feel like, Well, gee, I missed out, right?

It’s that fear of missing out that tends to drive people crazy. I don’t want to be left behind. I don’t want to miss out on the next greatest thing that I should have been investing in. And what ends up happening?

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People will go and chase these types of things. And then all of a sudden it’ll come crashing down, and then they feel like fools. 

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But I’ve seen it so many times in my career that I just felt like I had to, again, mention it here on the show. The idea of gold, and I’ve talked about this before.

There’s that little piece that I was looking forward to here. I can’t find it right off the bat, but there is a good little audio segment talking about the 4,500-year return of gold after inflation. There it is. There it is right there.

Clip: Andrew and Kelly, this is probably simplistic. Gold’s return over 4,500-plus years. Annual lies real return, zero. It preserved wealth, but then created, in terms of purchasing power, one ounce of gold buys about the same amount of goods in Ancient Egypt as it does today.

PW: Recognize, though, this: If we have fixed-income investments like treasuries, if we look at the devaluation of the dollar and we look at interest rates and how the devaluation of the dollar and inflation are correlated, they’re highly correlated. If all of a sudden, dollars do go down in value and people are worried about that, that it’s going to happen, if that does indeed happen, if we look back through history, interest rates go up and they’re at their peak during high inflation periods.

Look at the 1980s. Look at the 1970s when inflation was very, very high. Interest rates were also very high.

Some of you older people that remember investing in CDs, they gave you toasters and they gave you everything. And anything just that you wanted.

If you would just put money in a CD in a bank and they were paying these really high interest rates and people thought, This is going to be great forever. And people didn’t recognize that after inflation, you really still weren’t making anything.

But what we know is that when we’ve had high inflation in the past — and the 1980s was certainly a period of time when inflation was still stubbornly high — you can have gold prices actually go down. It is really future expectations that drove it down during that period of time, and a lot of people got caught and lost a lot of their wealth simply because what they thought was going to continue, the pattern they thought was going to continue to go on and on into the future forever, just did not do it. It did not happen.

The Bubbles Pop Fast

Recognize that I am not changing my stance on this. You may see things like this.

And it was funny because I watch this stuff and my wife goes, “Oh, it went up. Are your listeners going to be mad?”

And I’m going, “No, I don’t say that it’s not going to go up. I don’t ever say that it’s not going to go up. I don’t know what it’s going to do.” But I know that by definition, gold is not an investment position of cost of capital, and you have no idea what people are going to do as far as how they’ll bid it up.

You didn’t know that about tulip bulbs either, right? My son was pointing out … actually, he said there’s somebody who had something out there and they were joking around about tulip bulbs. And I said, “I love it that they use that example still.”

You look at that, the South Sea Bubble. That’s another example of it. Or you look at the tech stocks or the Tronic stocks in the 1960s, the oil stocks in the 70s, or the bonds in the 1980s, or the tech stocks in the late 90s. You see these things go through these gyrations, and you think it’s going to happen, it’s going to go on forever, and then all of a sudden it turns around, and you have no place to hide.

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You can’t find somebody to buy something from you once it starts to crash because they see the same thing that you do. That’s the key. 

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That’s really important to remember. Once something starts to go down, you think, Oh, I’ll just get out when it starts to go down. Now you’ve got to recognize that when bubbles have popped in the past, they pop so fast you can’t get anybody.

Because nobody wants to be a sucker and buy the thing off of you at the old high price, and when everybody else is getting out of dodge. Nobody wants that. Very, very dangerous investing can be if you follow your emotions, and this is an emotion-based type of investment.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.