Torsten Dennin
Stock market valuations are at their all-time highs of the last 200 years. In light of this ongoing stock market rally, gold seems to have lost its shine. Young investors, in particular, are tech-savvy, exchanging academic literature for YouTube channels and TikTok, trading meme stocks like GameStop, and are into crypto. Did Gold become an old man’s game? Or is a new generation of gold investors just getting ready?
„Gold seems to be an old man’s game - and Crypto is the new Gold it seems, especially for the next generation. We need new investors into the gold game, else it is over forever – just like the Gutenberg printer. “, Hendrik Mikkelsen, Cloudbreak Discovery
Since the lowest point of the financial and economic crisis in the spring of 2009, the stock markets have been booming - and this is already happening now for the 13th year in a row. Since the “annus horribilis” of 2008, the U.S. stock market index S&P 500 has increased more than 7 times!
The Corona crash in early 2020 turned out to be a minor side note in chart history. Lockdown effects and impending bankruptcies were washed aside with a flow of money, provided by governments and central banks.
In light of this ongoing stock market rally, precious metals, which are traditionally among the winners in times of crisis periods and are in demand when markets fluctuate, seem to have lost their luster. Young investors, in particular, are tech-savvy, exchanging academic literature for YouTube channels and TikTok, trading meme stocks like GameStop, and are well on their way to becoming crypto millionaires.
Stock market valuations are poised to eclipse the wild rally of the 1990s and the dot.com crash, hovering near the all-time highs of the last 200 years. Who needs an anchor in the form of gold on this path to the clouds? A physical investment in precious metals in the form of coins or bars seems to be merely a game of the past generation.
Generations and their investment habits
It is true that every generation's financial investment habits - in addition to individual financial education - are shaped by drastic events in the financial markets and the economy. Anyone who lost money with the collapse of Enron, and whose securities account vanished in smoke at the dawn of the Internet Bubble, is likely to be suspicious of stock investing.
Based on the work of Neil Howe and William Strauss, generations can be divided into the following age cohorts.
But first of all: let us assume that the active phase of investing takes place in age between entering professional career and the transition to retirement age, and that the influential events on the capital markets are relevant for each generation's own financial investment especially in the first third of this period.
Table. Generations and events, that shaped their investment behaviour.
*The investment period is based on the average of each generation range plus 20 years, and includes in total 15 years (first third of working life).
Generation Baby Boomer. The love for gold.
The Baby Boomers (1946-1964), who are currently in the transition to retirement age, are the post-war generation. The 1950s and 1960s were characterized by a wave of hope, euphoria, and a prosperous future - The Age of the Economic Miracle.
This generation grew up with gold as the anchor of the monetary system, so boomers built a stronger relationship with the physical precious metal than any generation before or since.
This relationship became even closer with the Nixxon shock, which marked the end of the U.S. dollar's gold peg. The price of gold soared dramatically: while gold was priced at $35 in the early 1970s, by 1979 one had to pay around $850. This represents a price increase of over 2,300%! The fear of rising inflation, an uncertain economic situation and the oil price shock shaped and strengthened the interest for gold and precious metal investments. Boomers inherited a deep-seated fear of currency devaluation and system upheaval from their parents' generation. To this day, the baby boomer generation holds on to precious metals, especially gold.
Generation X. Gold Immigrants.
Generation X (1965-1980) is currently at the peak of its working life and at the zenith of its earnings power. Having grown up with the pop culture of Viva and MTV, often in single-parent homes or in an environment where both parents worked and organized childcare was still unknown, the generation was shaped by exploding stock prices and the seemingly unprecedented economic growth of the "Golden Nineties". The German stock index DAX skyrocketed from 850 points at the end of the 1980s to over 8,000 points at the beginning of the new millennium. TV star Manfred Krug promotes the IPO of the T-share, Deutsche Telekom: Almost 2 million small investors in otherwise stock-sceptical Germany follow his call. Technology stocks, grouped together in NASDAQ and NEMAX, shoot into the starry sky and the Internet begins to change the world. In the decade of excesses, gold ekes out a shadowy existence - after a year-long downward trend, the troy ounce of gold was quoted at just $250.
But all at once, the dot.com crash wipes out almost all stock wealth. Many stocks lose more than 75% of their value in the next few months. Security becomes sexy again and grandparents' Krugerrands in the basement are no longer sneered at. Generation X are gold immigrants; after the boom & bust of the stock markets, the movement towards gold begins. A new gold bull market of the early 2000s is in the starting blocks.
Millennials. The saviors of gold?
Millennials, aka Generation Y (1981-1996), are the future top performers in the working world. On the one hand, they are considered to be particularly tech-savvy and digitally networked; on the other hand, they are declared to be materialistic and spoiled, especially by the older generations. In fact, however, Generation Y is worried that they will not achieve the prosperity of their parents. The reason for this is the high level of debt and the prospects on the labour market after the global economic and financial crisis in 2008. The crisis led to a rethinking of financial investment: almost 90% of Millennials are interested in sustainability and impact investing. By comparison, just half of the entire population shares this view. Besides sustainability, the second focus is digitalization: access from a smartphone is a must-have. Although Millennials are influenced by the new technology and the magic of cryptocurrencies, they have a strong attachment to gold, similar to the previous generation, which remains an important component in the portfolio. Of course, they realize that they won't get rich by just owning gold, however, it doesn't hurt either. Despite their affinity for the precious metal, they remain true to their reputation and make trading easier by largely foregoing physical investments in favour of funds and ETFS. The reason for this is the quick access to the gold market and the low costs; if necessary, gold can also be dropped from the portfolio with a click.
Generation Z. A generation between Google, social media & Co
Gen Z (1997-2010) is growing up in a digital world characterized by fast pace and convenience. This also has an impact on their investment behaviour. It seems as if the generation is divided into two camps: on the one hand, the credo is faster, harder, richer, regardless of the means. Jordan Belfort and "The Wolf of Wall Street" are icons as Tesla and Elon Mask. On the other hand, there is the bigger trend for soy milk and vegan food lovers, who put their personal focus on sustainable investments, and save the world climate in the process (“Generation Greta”).
The initial financial imprinting of this group is happening through a strong and active government, debt creation, bailouts, rising asset prices, and wild excesses in meme stocks and cryptocurrencies.
But how does Generation Z feel about gold and silver now? You could almost guess it after the words "technology" and "sustainability" came up: Gold and Gen Z don't get along very well. Unlike previous generations, people under 25 years old have no emotional attachment to gold. Gold is also seen as unfashionable and does not yield returns. However, with the outbreak of the Corona pandemic, Gen Z slowly turns its focus to gold. In Germany, demand for gold from 18-25 year olds increased by more than 200% last year. Concerns about another recession, a continuing printing of money and an unprecedented debt levels, as well as the experience of a loss of value of money for the first time for this generation, significantly strengthened the interest and demand for precious metals. Quo vadis, Gen Z?
Conclusion.
The price of gold is considered a guarantee of stability and a proven method of preserving value over generations. The price of a troy ounce of gold is subject to market fluctuations just like any other asset, and yet gold has proven over long periods of time to maintain purchasing power and as a protection against inflation.
As a new wave of financial participants emerges, so does a new wave of liquidity. While Baby Boomers and Generation X have an emotional attachment to gold as an asset, Millennials are more pragmatic but still interested in gold. For gold demand, one can hope that Generation Z, with its two prevailing trends in technology and sustainability, will become gold immigrants just as Generation X did. One trigger for this could be rising inflation rates, runaway government debt, and equity market depreciation in the future. Gen Z's access to the gold market will be focused on the smartphone and less about physical ownership. However, it would be wrong and premature to write off Gen Z with respect to gold as an investment and focus exclusively on Generation Alpha (2011-2025).
About the Author.
TORSTEN DENNIN (Generation X) is Professor of Economics and member of the Berlin Institute of Finance, Innovation and Digitalization. For almost 20 years, Dr. Dennin has been a professional investment expert in commodity and equity markets. He is chief investment officer and a member of the Board of Asset Management Switzerland AG and founder of Lynkeus Capital, an investment company focused on commodities and natural resources in Zug, Switzerland.
Dr. Dennin lives in Switzerland, is the author of several books, publishes regularly in industry journals, and is often invited by the media to comment on current market affairs. His latest book, From Tulips to Bitcoins, reached bestseller status on Amazon in the categories finance, commodities, and digital currencies and has been translated into six languages. The author can be contacted via LinkedIn.