I've been watching gold price charts lately and noticed an interesting phenomenon worth discussing. Over the past 55 years, gold has been freely priced by the market since 1971 when the dollar detached from the gold standard, rising from $35 per ounce to over $5,100 per ounce now, an increase of more than 145 times. This half-century-long upward cycle is truly remarkable, but will it continue indefinitely?

Looking back at the gold price chart over these 50+ years, I found that the rise in gold prices hasn't been smooth. It can be roughly divided into three distinct upward phases. The first was from 1971 to 1980, when gold surged from $35 to $850, a 24-fold increase. This was mainly due to a crisis of confidence in the dollar, oil crises, and geopolitical risks. But after 1980, it collapsed, dropping 80%, and for the next 20 years, it traded sideways between $200 and $300, with little to no return on gold investments during that period.

The second upward cycle was from 2001 to 2011, when gold rose from $250 to $1,921, an increase of over 700%. This was driven by the 9/11 attacks, the US anti-terrorism wars, and the subsequent 2008 financial crisis, with central banks continuously cutting interest rates and implementing QE, pushing gold prices higher. But after 2011, it entered an 8-year bear market, falling over 45%.

The most interesting is the third rise, starting from a low of $1,200 in 2019, now exceeding $5,000, an increase of over 300%. The drivers include global de-dollarization, US QE, the Russia-Ukraine war, escalation in the Middle East, and a weakening dollar, among others. Especially in the past two years, from early 2024 when it was around $2,000, it surged over 150%, far surpassing most asset classes.

Looking at these three upward cycles in gold, I’ve summarized some patterns. Each bull market begins with a collapse in dollar confidence or systemic pressure, then progresses through three stages: slow rise, acceleration, and overheating. Usually lasting 8 to 10 years, with gains ranging from 7 to 24 times. The end of a bull market often coincides with central banks tightening monetary policy and controlling inflation, such as the aggressive rate hikes in 1980 and the end of QE in 2011.

But this time is different. The government debt levels of major economies worldwide are already sky-high, and central banks can't raise interest rates as aggressively as before. So, the traditional clean tightening cycle may not occur. Instead, gold prices might oscillate within a high price range for several years. The true signal of an end might only come when a new, more credible global monetary system emerges.

Regarding investing in gold itself, I have to say it’s indeed a good tool. From 1971 to now, gold has increased 120 times, while the Dow Jones Industrial Average rose 51 times, so long-term, gold isn’t worse than stocks. But the problem is, gold prices are volatile. The 20-year sideways movement from 1980 to 2000 meant if you bought then, you basically saw no gains. How many 20-year periods do we have in life to wait?

Therefore, I believe gold is suitable for swing trading, not for simple long-term holding. Bull markets are usually accompanied by macro crises, and bear markets tend to be prolonged and sluggish. Catching the right cycle can lead to big gains, while missing it might mean lying flat for years. But there’s good news: since gold is a natural resource, its mining costs tend to increase over time, so even after a bull run ends and prices fall, the lows will gradually rise. This pattern is very important to consider in trading.

There are many ways to invest in gold. Physical gold is the most direct, but not very convenient to trade. Gold savings accounts and ETFs are more liquid, but if gold prices stay stagnant for a long time, their value will slowly decline. For short-term swing trading, gold futures or CFDs are more flexible, with lower costs, and allow both long and short positions, leveraging to amplify gains. Small investors can participate easily because of low minimum deposits and user-friendly trading mechanisms.

Compared to gold, stocks, and bonds have different sources of returns. Gold mainly profits from price appreciation, stocks from corporate growth, and bonds from interest income. In terms of investment difficulty, bonds are the simplest, gold is next, and stocks are the hardest. But in terms of returns over the past 50 years, gold performed the best, although in the last 30 years, stocks have yielded higher returns.

My basic investment rule is to choose stocks during economic growth periods and allocate gold during recessions. A more prudent approach is to diversify according to your risk profile, with a mix of stocks, bonds, and gold. When the economy is strong and corporate profits are good, stocks tend to rise easily, and gold is less favored. During economic downturns, gold’s value-preserving qualities and bonds’ fixed income become more attractive.

Markets are constantly changing, and major geopolitical events can happen at any time. The Russia-Ukraine war and rising inflation and interest rates are examples. To hedge against unpredictable shocks, holding a diversified portfolio of stocks, bonds, and gold can offset some volatility risks, making your investments more resilient. That’s the smart investment approach.