By Philip van Doorn, MarketWatch
Stocks and bonds may be in an asset bubble, as record-low interest rates and a tremendous increase in the money supply have sent prices soaring this year.
Add gold, which has risen 35% to $2,049 an ounce Aug. 5, to the list.
But Michael Cuggino, CEO of the Permanent Portfolio Family of Funds, says gold can move a lot higher. It would “not be an unreasonable move” for gold to breach $4,000, he said in an interview.
Cuggino manages the Permanent Portfolio /zigman2/quotes/205061618/realtime PRPFX -1.06% , a $1.9 billion mutual fund that is conservatively run and rated four stars by Morningstar in the fund-research firm’s “U.S. Fund Allocation — 30% to 50% Equity” category.
A long wait for a big move
First, take a look at this chart showing how monthly prices for an ounce of gold /zigman2/quotes/210034565/delayed GC00 -1.45% (per continuous gold contracts on the New York Mercantile Exchange) have moved over the past 30 years:
You can see the triple bottom from the end of 2015 through November 2018.
“Ever since then, it has been gradual move up, then some down. It moves sometimes in big chunks, gives some back, sits around and does nothing, reacts to stimulus, inflation, the value of dollar and euro ... but it has had an aggressive move this year,” Cuggino said.
Gold may extend gains as money is being pumped into the U.S. economy, the dollar is declining, and investors are fearful that inflation may return, he said.
Cuggino warned of sharp pullbacks even during a long-term move up, as did Nigam Arora, who wrote that gold is an appropriate hedge against stocks. Still, “gold is a very small market, and it can be easily manipulated by the governments,” Arora wrote on MarketWatch.
The case for gold being relatively cheap
When looking back at how gold and stock prices have moved over the very long term, Cuggino said gold is still trading at an inexpensive level when compared with stocks. This chart shows monthly prices of gold divided by closing levels for the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.62% over the past 30 years:
The S&P 500 was up 3% for 2020 through Aug. 5, but it was also up 49% from its closing low March 23.