Happy Sunday, GoldBuzzers!

One of the harshest realities for precious metals investors is the depth of the drawdowns we have to endure. Over the past 25 years, gold has dropped as much as 45% and silver has dropped 75%. Many of you have been feeling this recently, following the January peak, and have written in asking how to handle these periods.

Because it’s such an important topic, I’m going to make this a short series. Starting today, and over the next three Sundays, I'll examine each of the four main precious metals markets in detail: gold today, then silver, gold miners, and finally silver miners. We’ll have a deep dive into the data, because the risk-reward profile is dramatically different for each one. Expect some eye-opening numbers, and some practical tips you can apply right away.

Ok. Let’s get into it. ⬇️

Gold and silver both pushed higher on Friday to close out a strong week. Gold climbed to $4,715, its best level since April 22, locking in a weekly gain of around 2%. Silver bounced back above $80 after a volatile Thursday, heading for a weekly gain north of 7%.

The driver? Growing optimism around a potential US-Iran peace deal. President Trump paused the Navy's "Project Freedom" escort operation on Tuesday, citing "great progress" toward an agreement, and Tehran is reportedly reviewing a US proposal delivered through Pakistani mediators. The mood shift took some pressure off oil prices, which eased inflation fears that have been hammering metals since the war kicked off in late February.

That said, the situation remains fragile. CENTCOM confirmed it intercepted Iranian attacks and launched defensive strikes earlier in the week, reminding everyone this ceasefire is far from settled. On the data front, April's jobs report came in hotter than expected at 115,000 new positions versus forecasts around 65,000, with unemployment holding at 4.3%. Strong enough to show the economy isn't falling apart, but not so strong that the Fed is under pressure to tighten further.

Gold is still down roughly 10% and silver around 15% since the conflict began, so both metals have plenty of ground to recover if the peace talks gain real traction.

If you've been a GoldBuzzer for a while, you’ll know a bit about my story and what drew me to precious metals. For newer subscribers, here's the short version. I'm not from a traditional finance background. I came to precious metals from IT, database systems, and data analysis, with stints at British Aerospace and Scotland Yard along the way. I've mentioned that journey in The Gold Awakening and on the Theseus project website.

I first started buying gold and silver during the last great bull market of 2008-2011, when gold tripled, silver went up five times, and anyone who owned decent mining stocks looked like a genius. Most investors remember those years fondly. The good times were rolling. But like many of us at the time, I didn't have a trading plan. I just operated on gut feel and what was in the news.

For those three years, I watched my profits grow exponentially. Gold peaked in August 2011. By December 2015, it had fallen 45%. Silver peaked four months earlier, in April 2011. By the time silver finally bottomed in March 2020, it had dropped 75%. Nine years from peak to trough!

Fortunately, I got out long before prices hit bottom, but I watched much of those fantastic profits disappear. It was a life-changing experience for me, and it taught me how easy it is to be “right” and still end up “wrong”. As someone who worked with data for a living, I vowed never to make the same mistake again.

The lesson is that simple discipline isn’t enough. By the time price action finally forces you to sell, you’ve already given back most of your gains. By the time it forces you to buy again, the early movers have already captured the bulk of the next move. I learned that without a system of some kind, I was just flying on instinct. As precious metals are volatile, instinct loses in the long run.

This isn't a unique story. The most well-known version of it is Ray Dalio's. In 1982 he made a high-profile public bet that the U.S. economy was headed for a depression. He went on television. He testified to Congress. The market did the opposite, beginning the bull run that defined the next 18 years. Dalio lost almost everything, had to borrow $4,000 from his father to cover his basic expenses, and laid off his entire staff. He has said many times since that the failure was the best thing that ever happened to him, because it forced him to stop trusting his conviction and start building systems. The methodology that became Bridgewater, one of the most successful hedge funds in history, was built directly on the 1982 collapse. The disaster was the foundation.

My own version was smaller and lower-profile, but the lesson it taught me was identical. The trader's instinct I had relied on for years was exactly what cost me when it mattered most. That painful experience led me to spend four years on the Theseus research project, which went on to become the GoldBuzz INSIDER signals that I use for my own investing to this day. The whole project was my response to that failure: a way to take what had cost me and build something I would never have to rely on my instincts to follow again.

The numbers most investors underestimate

The thing about drawdowns is they’re not symmetric. A 50% loss requires a 100% gain to recover. A 75% loss requires a 300% gain. The deeper the hole, the more disproportionate the future climb has to be.

This is the math behind the warning every serious trader hears in their first year and most retail investors never absorb. You don’t survive a bull market by maximising every basis point during the good years. You survive it by limiting the depth of your drawdowns when the cycle turns.

There’s a psychological dimension that the math hides. A 75% drawdown isn’t just a number on a screen. In silver’s case, it’s nine years of opening your portfolio every Monday morning and seeing red. Most investors can’t take it. They sell near the bottom, vow never to touch precious metals again, and miss the next cycle entirely.

So the question for anyone investing in these markets is the same. What’s your plan? What will you do during a big decline? The historical record is unambiguous. There will always be another one.

What risk management actually looks like

Risk management here means having a rule that gets you out of the market when conditions deteriorate, and gets you back in when they recover. The rule can be simple or sophisticated. What matters is that it exists, that it’s mechanical, and that you always follow it.

The most accessible version is a simple moving average filter. The 200-day moving average is the most popular. Own the asset when its price is above the 200-day average, sit in cash when it’s below.

The logic is simple. Sustained downtrends usually push prices below this average for extended periods, and sustained uptrends keep them above. The filter doesn’t catch every wiggle, but it tends to keep investors out of the worst declines.

A 25-year backtest tells us how well these rules actually work. The numbers below run from January 2001 through December 2025. They use buy-and-hold as the baseline and three filter rules for comparison: the 200-day moving average, a 50-day-vs-200-day moving average crossover, and Mebane Faber’s 10-month moving average rule.

Two metrics matter most. The first is annualised return, technically called CAGR (compound annual growth rate). It’s the smoothed yearly return that turns the start price into the end price. If gold went from $268 to $4,322 over 25 years, the CAGR is the annual rate that produces that result. The second is maximum drawdown, the worst peak-to-trough decline you would have experienced.

A third metric is also worth understanding. Exposure-adjusted CAGR tells you what your capital earns per year of actual market exposure, rather than per calendar year. If a system is invested only half the time, but produces the same return, comparing its raw CAGR to buy-and-hold isn’t fair. The exposure-adjusted figure asks: when the system is actually deployed, how much harder is each dollar working?

If you bought and held gold for the last 25 years you would have earned an 11.8% annualised return. That’s a strong number. Better than the S&P 500, which returned 8.8% per year over the same period.

And those conditions haven’t gone anywhere; if anything they’ve intensified.

However, the cost of that return was a 44.6% drawdown along the way. Holders rode the entire decline from August 2011 to December 2015, watching nearly half their position disappear over four years.

How did the simple filters do in terms of exposure-adjusted returns?

And how did they do in terms of limiting drawdowns?

The 200-day moving average reduced the worst drawdown to 31.8%, a meaningful improvement. The 50/200 crossover landed at 35.3%. The 10-month rule, which is slower to react, only got the drawdown down to 41%, because it didn’t move quickly enough during the 2011-2015 decline.

All three filters lifted the exposure-adjusted CAGR above the buy-and-hold figure, ranging from 12.2% to 12.8%. That confirms the filters are correctly identifying when to be in the market. The catch is that they spend roughly 30% of their time in cash, so their raw annualised returns are lower than buy-and-hold despite the better per-day performance.

Compare those numbers to what a more sophisticated system can do. The two GoldBuzz INSIDER systems for gold over the same period both delivered exposure-adjusted CAGRs above 16%. Min Risk, designed to prioritise capital preservation, posted 17.5% with a worst drawdown of 22.2%. Max Return, designed to capture more of the upside, delivered 16.3% (but with higher absolute returns) and a 25.5% worst drawdown.

The following chart plots every system’s combined performance by return and drawdown on a single map. Maximum drawdown is on the horizontal axis. Return (exposure-adjusted CAGR) is on the vertical. The closer a system sits to the upper-right corner, the better it performed on both dimensions.

The simple filters cluster together, but they’re all better than buy-and-hold. The INSIDER systems sit in their own region. That’s not surprising. Single-rule filters can only do so much in complex markets. INSIDER combines multiple signals across different timeframes, designed specifically for the unique rhythms of gold rather than imported from generic trend-following.

The reasons to own precious metals haven't gone anywhere. With US debt at $39 trillion and rising, fiat currencies under structural pressure, and central banks themselves accumulating gold at record rates, the macro case is as strong as it has ever been. None of that is in question.

If you hold gold, you need a plan for the next drawdown. Not maybe. The historical record says decisively that buy-and-hold investors will face drawdowns deep enough to break their conviction.

A simple moving average rule is not a complete solution, but it’s dramatically better than nothing. If you take only one thing from this article, please take that. An investor who applied a 200-day moving average filter to gold over the past 25 years would have reduced their worst drawdown from 45% to 32%, a meaningful improvement that costs nothing more than a rule and the discipline to follow it.

A more sophisticated system can do a lot more. If you want to read the full performance breakdown for gold from 2001-2025, the GoldBuzz INSIDER gold systems page has a detailed summary.

The point isn't that you need INSIDER. The point is that you need something. Buying and holding gold through a full cycle without a risk management framework isn't a strategy. It's a wager on your own emotional fortitude.

I did it once and I'll never do it again.

That's gold, and it's by far the gentlest case in this series. I hope you found it illuminating.

Next Sunday, I'll examine the last quarter century of silver investing, which generated a similar buy-and-hold return to gold but with a 75% drawdown. Ouch!

That’s all for this Sunday, folks. See you on Tuesday.

Before you go, please take a moment to rate today’s newsletter and tell us how we did.

Rick Adams
Founder, GoldBuzz
rick@goldbuzz.com