I've been watching gold trends lately, and I realize that the story of gold prices over the past few decades is actually quite worth a deep discussion.

Since the US dollar detached from the gold standard in 1971, gold has soared from $35 per ounce to over $5,100 as of May this year, and this increase is truly impressive—over 145 times. Especially in the past two years, from early 2024 when it was around $2,000, to now, the cumulative gain has exceeded 150%, outperforming most asset classes.

Looking back over the past 50+ years, gold has experienced three clear major bull markets. The first was from 1971 to 1980, from decoupling to inflation frenzy, with a 24-fold increase. At that time, people just realized the dollar could no longer be exchanged for gold, their confidence shattered, preferring physical gold over the dollar. Later, oil crises and geopolitical risks hit, until the Fed's aggressive rate hikes in 1980 ended this cycle.

The second bull run started after the 2001 dot-com bubble burst, rising all the way to 2011, with an increase of over 700%. This was mainly driven by 9/11 and the subsequent financial crisis, with the US engaging in massive QE, various easing policies stacking up, and gold prices rising along with the liquidity flood.

The current wave began in 2019, with gains over 300%, driven by global de-dollarization, US QE again, the Russia-Ukraine war, and recent escalation in Middle Eastern tensions. It looks like this bull market hasn't fully ended yet.

I've observed a pattern: each bull market starts with a credit crisis combined with loose monetary policy. Midway through, a crisis catalyst accelerates the rise, and in the late stage, speculation heats up. But this time is different—global government debt is already sky-high, and central banks can't raise rates aggressively to end the bull like before. The more likely scenario is that gold prices will consolidate at high levels for several years, fluctuating repeatedly.

Whether gold is suitable for investment depends on how you compare it. Over the past 50 years, gold has increased 120 times, while the Dow Jones has risen 51 times, making gold seem more explosive. But there's a trap—between 1980 and 2000, gold prices hovered between $200 and $300 for nearly 20 years, during which investing in gold meant little to no gains. How many people have 20 years to wait?

So, I believe gold is indeed a good tool, but it’s better suited for swing trading rather than pure long-term holding. Bull markets in gold usually accompany macro crises (inflation, geopolitics, easing), while bear markets tend to be long and sluggish. Catching the right cycle can lead to big gains, but missing it might mean lying flat for years. Also, since gold is a natural resource, extraction costs increase over time, so even after a correction, the low points tend to gradually rise. Remember this when trading.

There are many ways to invest in gold. Physical gold is the most convenient for hiding assets, but trading is less flexible. Gold certificates, like early US dollar deposit receipts, are portable but don’t pay interest and have large bid-ask spreads. Gold ETFs offer better liquidity and easier trading, but the issuing companies charge management fees.

Most retail investors use gold futures or CFDs because they leverage to amplify gains, allowing both long and short positions. Especially CFD trading, which is more flexible, with higher capital efficiency, friendly to small investors and retail traders. The advantages are low trading costs, flexible trading hours, and small account sizes, making it more suitable for short-term swing trading.

Comparing gold, stocks, and bonds, their sources of returns are entirely different. Gold gains mainly from price differences, with no interest, so timing entry and exit is crucial. Bonds generate income through interest, requiring continuous reinvestment. Stocks grow through corporate expansion, suitable for long-term holding. In terms of investment difficulty, bonds are the simplest, gold is next, and stocks are the most challenging.

Looking at the past 30 years’ returns, stocks performed the best, followed by gold, then bonds. But to profit from gold, you need to catch market trends, usually a long bull, sharp dips, sideways consolidation, then a new bull cycle. Being able to identify a bull run for long or a sharp decline for shorting can yield higher returns than bonds or stocks.

My basic rule of thumb is: “Invest in stocks during economic growth, allocate gold during recessions.” A more prudent approach is to set proportions of stocks, bonds, and gold based on your risk profile and investment goals. When the economy is strong and corporate profits are good, stocks tend to rise, and gold and bonds are less attractive. Conversely, during economic downturns, gold’s value-preserving feature and bonds’ fixed yields tend to be more favored.

Ultimately, markets are unpredictable, and major political and economic events can happen at any time. The Russia-Ukraine war and rising inflation with rate hikes are prime examples. To hedge against unforeseen shocks, holding a balanced mix of stocks, bonds, and gold can offset some volatility and make your investments more stable. Especially when reviewing the past 20 years of Hong Kong gold prices and global market changes, the importance of diversified asset allocation becomes even clearer.