I've been watching the gold market trends recently and found that the logic behind this thing is actually quite interesting. Over the past fifty years, since the United States announced the end of the gold standard for the dollar in 1971, gold has been like it was liberated, rising from a fixed $35 an ounce to over $5,000 now, an increase of more than 145 times. If you look at the performance of gold over the past 10 years on a chart, you'll find it's not just some boring asset.

I’ve divided gold’s historical price movements into three obvious bull cycles, each corresponding to different crises. The first wave is from 1971 to 1980, from the dollar trust crisis to inflation frenzy, which surged 24 times. At that time, the dollar changed from a convertible note to paper, and everyone panicked, preferring gold over dollars. Later, oil crises and geopolitical turmoil hit, and it wasn’t until the Fed aggressively raised interest rates in 1980 that it was brought down.

The second wave is even more interesting. After the dot-com bubble burst in 2001, gold started at $250, rising to $1,921 by 2011, a 7.6-fold increase over ten years. During this period, there were the 9/11 attacks, the US anti-terror wars, the 2008 financial crisis, and quantitative easing (QE) rescue measures— a series of crises pushed gold higher. Of course, after the Fed ended QE in 2011, gold entered an 8-year bear market, dropping over 45%.

Now we are in the third bull market, starting from the low of $1,200 in 2019, and it has already broken through $5,000, up over 300%. The driving forces behind this wave are particularly strong: global de-dollarization, central banks frantically buying gold, the Russia-Ukraine war, tensions in the Middle East, plus US trade policy risks and global stock market volatility. These factors stack up, causing gold prices to keep hitting new all-time highs.

I’ve noticed that the logic behind every gold bull market is quite similar: a credit crisis combined with loose monetary policy is the starting point. Then it progresses in stages—initially slow and steady, mid-term acceleration, and late-stage overheating. On average, each bull lasts 8 to 10 years, with gains ranging from 7 to 24 times. But what’s different this time is that global government debt has become so high that central banks can’t raise interest rates significantly to end the bull run like in the past. So, gold is likely to consolidate at high levels for several years, with intense fluctuations up and down. The real signal of an end will only come when a new global monetary system emerges.

Regarding investing in gold, I think it’s indeed a good tool, but it depends on how you use it. If you only look at the returns over the past 50 years, gold has increased 120 times, stocks 51 times, so gold outperforms. But the problem is that gold’s price movement isn’t smooth; from 1980 to 2000, it hovered between $200 and $300 for 20 years, during which investing in gold basically yielded no returns. So, gold is suitable for swing trading—catching bull runs to go long or short during sharp dips—only then can you profit from big swings. If you just hold long-term without trading, it might be like lying flat and earning nothing.

There are many ways to invest in gold. Physical gold is the most direct, but not very convenient to trade. Gold certificates and gold ETFs are forms of custody receipts, with better liquidity than physical gold, but if gold prices stay stagnant for a long time, their value will gradually decline. If you want to do swing trading, gold futures or CFDs (contracts for difference) are the real tools, because they offer leverage to amplify gains, allow both long and short positions, and have lower transaction costs. For small investors, CFDs have a lower entry barrier—only $50 to open an account—and support small trades, making them more friendly compared to futures.

Compared to gold, stocks, and bonds, my observation is that bonds are the simplest (just collect interest), gold is next (relying on price differences), and stocks are the hardest (you need to pick the right companies). Looking at yields over the past 50 years, gold was the most explosive, but in the last 30 years, stock returns have been better, followed by gold, with bonds last. So, the true investment logic should be: during economic growth, allocate to stocks; during recessions, allocate to gold; and normally, you can adjust the proportions of stocks, bonds, and gold based on your risk profile.

When the economy is good, companies make money, stocks tend to rise easily, and assets like gold that don’t generate income are less attractive. But when the economy is sluggish, stocks fall, corporate profits decline, and gold’s value-preserving feature becomes prominent. Bonds with fixed interest payments also become more attractive. Facing unpredictable shocks—like the Russia-Ukraine war, inflation, and rate hikes—holding a certain proportion of stocks, bonds, and gold can offset some volatility risks, making your investment more stable. That’s the true way of asset allocation.