Lately, I've been watching the gold market and noticed a pretty interesting phenomenon. Over the past half-century or so, gold prices have fluctuated, but the overall trend has been upward, continuously setting new all-time highs. This has made me start to wonder, will such a bullish market cycle reappear in the next 50 years?

Let's review the history. After President Nixon announced the decoupling of the dollar from gold in 1971, gold began to be truly priced by the market. At that time, the gold price was only $35 per ounce, and by this year's beginning, it had stabilized above $5,100, an increase of over 145 times. Especially in the past two years, from about $2,000 to over $5,000, the cumulative increase exceeded 150%, a speed that indeed outpaces most assets.

I compiled a 20-year data chart of gold's historical trend and identified three clear bull market cycles. The first was from 1971 to 1980, from $35 to $850, a 24-fold increase, resulting from public loss of confidence in the dollar after decoupling. The second was from 2001 to 2011, from $250 to $1,921, an increase of over 700%, driven by the financial crisis and low-interest-rate environment. The third started from 2019 to now, from $1,200, already surpassing $5,000.

Interestingly, each bull market's cause follows a pattern. Bull markets always begin with a credit crisis combined with loose monetary policy. 1971 marked the end of the gold standard, 2001 was driven by low interest rates to rescue the economy, and 2018 shifted to dovish policies along with pandemic QE. But the end of these bull markets was always due to aggressive tightening and inflation control, such as the sharp rate hikes in 1980 and the end of QE in 2011.

But this cycle is different. Because the government debt of major economies worldwide has become unmanageable, central banks can't raise interest rates significantly like in the past. So, the traditional clean tightening cycle may be hard to occur. A more likely scenario is that gold prices will fluctuate wildly within a high price range for several years, which is what we call a high-level consolidation phase. The true signal of ending might require waiting for a completely new global monetary and credit system to emerge.

Regarding investment, is gold worth investing in? My view is that, over a 50-year span, gold's returns are actually not worse than stocks. But the problem is, gold prices are not stable. Between 1980 and 2000, gold traded sideways between $200 and $300 for nearly 20 years. If you invested in gold during that period, you almost had no gains and also bore opportunity costs. How many 20-year periods does one get in life?

Therefore, I believe gold is a very good investment tool, but it’s more suitable for trading in waves during market trends, rather than for purely long-term holding. Bull markets in gold are often accompanied by macro crises, 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 many years. Also, since gold is a natural resource, mining costs increase over time, so even after a bull run ends and prices fall, the lows tend to gradually rise, so there's no need to worry about it dropping to worthless levels.

There are many ways to invest in gold. Physical gold is convenient for hiding assets, but not very liquid. Gold certificates and ETFs have better liquidity and are suitable for long-term investment. If you want to do short-term trading, consider gold futures or CFDs, which leverage can amplify gains, allow both long and short positions, and have low transaction costs, making them friendly for small investors.

Comparing gold, stocks, and bonds, their return mechanisms are completely different. Gold mainly relies on price differences, stocks on corporate growth, and bonds on interest payments. In terms of investment difficulty, bonds are the simplest, gold is next, and stocks are the most challenging. But in terms of returns over the past 30 years, stocks have actually performed better.

My basic rule for choosing between gold and stocks is "buy stocks during economic growth, allocate gold during recessions." A more prudent approach is to set reasonable proportions among stocks, bonds, and gold based on personal risk tolerance. When the economy is good, corporate profits are optimistic, stocks tend to rise, and gold is less favored. Conversely, during economic downturns, gold's value-preserving features and bonds' fixed yields become more attractive.

Finally, I want to say that markets are constantly changing, and major geopolitical events can happen at any time. The Russia-Ukraine war, inflation, and interest rate hikes are prime examples. Facing unpredictable shocks, holding a certain proportion of assets in stocks, bonds, and gold can offset some volatility risks and make your investments more stable.