Stock indexes fell slightly on Friday but still finished higher for the week after U.S. payrolls rose much more than expected in May, dimming hopes for interest rate cuts any time soon. Employers added 272,000 new jobs, while average hourly earnings over the past 12 months ticked higher after three straight monthly declines. The jobs report followed Thursday’s rate cut from the European Central Bank, its first since 2019. All three major stock market indexes posted a winning week, with the S&P 500 edging 1.3% higher, the Dow Jones jumping 0.3%, and the Nasdaq Composite closing up 2.4%.
US Federal Reserve officials will meet next week and are widely expected to hold interest rates steady as the US economy hums along and the labor market keeps firing on all cylinders. However, the unemployment rate increased to 4% from 3.9%, rising to that level for the first time in over two years.
With mixed signals, where to invest now is the big question?
Future Wealth’s View
With technology stocks, primarily fueled by Nvidia continuing to move higher, there has been a resurgence of interest in gold as a safe haven. The spot price of gold, recently, was $2,350 an ounce, marking a 19% appreciation in the past 12 months. Most investors are putting money into gold funds but a plethora of others are buying gold bars from Costco.
The ride is great when gold prices move higher but there are inherent risks and flaws to owning gold etfs and physical gold bars or gold coins. Most importantly, there is no cash flow from this asset i.e. no dividends or interest. Secondly, profits on gold sales are capital gains like most stock sales but these capital gains are taxed at higher rates than other capital gains. Even fund expenses are passed through as capital gains on gold funds. If one is looking to hold gold in an IRA, many of the IRA sponsors add fees to hold gold. Fidelity charges 2.5% to buy $10K of gold and 2% to sell it.
In the end, there is no alternative (TINA) to stocks. The most famous quote from Charlie Munger that shaped Warren Buffett’s investment philosophy was – “A great business at a fair price is superior to a fair business at a great price.”
Gold is not a great business.