Gold’s Performance vs. the S&P 500?

Discussion in 'Bullion Investing' started by fretboard, Dec 10, 2019.

  1. fretboard

    fretboard Defender of Old Coinage!

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  3. CoinBlazer

    CoinBlazer Numismatic Enthusiast

    It depends on your definition of outperform! Notice how Gold may have higher market value but also significantly higher volatility. This is a perfect example of Risk versus reward.
    fretboard likes this.
  4. The Eidolon

    The Eidolon Well-Known Member

    Gold was about $274 per ounce (not adjusted for an inflation) in 2000. This was a very low price by recent historical standards. Likewise the stock market was in the midst of the first internet boom and fell shortly thereafter. I believe they cherry-picked their starting year. On the longer term, gold tends to underperform compared to stocks. Both are reasonably good hedges against inflation (though volatile) but equities reflect real economic growth where gold largely does not.
  5. fretboard

    fretboard Defender of Old Coinage!

    Interesting food for thought! :D
  6. Clawcoins

    Clawcoins Well-Known Member

    Last edited: Dec 11, 2019
  7. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Bingo !!

    In order to compare 2 different asset classes, you can't have starting/ending biases. The way to avoid this is to use ROLLING PERIODS where you see over a 30-year period how each asset class does, advancing the staring and ending periods by 1 year as you advance over time.

    This takes into account total returns and volatility and eliminates timing biases.


    If you look at the chart above, you see that the higher volatility of gold as well as the LACK OF INCOME/DIVIDENDS caps the 30-year rolling returns at about 6%. Stocks are much closer to the post-1929 long-term average of about 10% compounded returns annually.
    Paul M. and The Eidolon like this.
  8. TheFinn

    TheFinn Well-Known Member

    The difference is that gold doesn't go to 0. What is GM stock from the '50s worth? Or Packard, or Studebaker? How has Sears Roebuck done lately compared to 50 years ago?
    ripple likes this.
  9. midas1

    midas1 Exalted Member

    Gotta know how to pick 'em.
  10. TheFinn

    TheFinn Well-Known Member

    Only one is batting 1.000.
  11. -jeffB

    -jeffB Greshams LEO Supporter

    The comparison was with the S&P 500, not the Finn 1 (or 4).

    Look, I'll confess. I bought New Century Mortgage in 2006 or 2007 when it was offering a 20% dividend. I put several thousand dollars into it, and that money went to zero.

    At about the same time, though, I put comparable amounts into other stocks, including Apple. The money I put into that is up over 15-fold.
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  12. GoldFinger1969

    GoldFinger1969 Well-Known Member

    You're talking about a few stocks that went to zero.

    That's comparing apples to kumquats.:D
  13. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Gold also doesn't pay a dividend or interest....does not participate in the growth of the real economy....and is not a productive asset, aside from jewelry.
  14. midas1

    midas1 Exalted Member

    Gold doesn't do dividend reinvestment or compound interest.
    Santinidollar and GoldFinger1969 like this.
  15. crazyd

    crazyd Active Member

    My view for what its worth is the PM's are just a part - well less than 10% of my investments in stocks, bonds, my home, etc... but its a nice part - its tangible, I can hold it at any time just like a warm shinny blanket when I feel a shiver. :)
    ripple, midas1 and GoldFinger1969 like this.
  16. myownprivy

    myownprivy Well-Known Member

    There have been so many threads like these over the years, and I always wonder: what is the logical conclusion you come to after considering the performance of stocks versus gold? Let's suppose gold DID actually outperform stocks. What would you do then? Would you invest in gold instead of stocks? How would that work?

    Ok, so how would you store it? Gold needs a safe, or a safe deposit box, or an armed homeowner. How are you going to do that? Stocks need none of those expenses.

    How would you easily sell it when you want cash? Would you lug yourself and your metal down to the coin store, the pawn shop, or the local Starbucks to sell it on craigslist? That takes time and money.

    How would you easily sell part of your gold stack? Are you going to be buying fractional gold? That carries a hefty premium. So now not only does gold need to outperform stocks. But it better out perform it by at least 7.5%, because the premium on 1/10oz gold Eagles is about 7.5%!

    Look, gold is awesome. Silver and gold are fun to own. They are a great safety net if you lose your income and your traditional investments. But they are never, ever a replacement for stocks and bonds. There are just too many difficulties associated with physical investments.
    GoldFinger1969 and midas1 like this.
  17. -jeffB

    -jeffB Greshams LEO Supporter

    Those fractionals can carry a premium on buyback, too. But there's generally a fixed component to transaction cost, so the smaller the amount you're buying or selling, the larger the bite that fixed component will take.

    I fully agree with the rest of your comment. We didn't move to paper (now electronic) accounting because of some evil plot; we moved because it was cheaper, easier, safer, and more convenient than lugging around physical material as store of value/medium of exchange -- in general. (Yes, there are specific exceptions. No, the exceptions don't negate the general principle.)
    GoldFinger1969 likes this.
  18. myownprivy

    myownprivy Well-Known Member

    I hear your point: selling fractional gold also results in you being paid a premium when you sell back. However, the spread received on a full ounce is still better than the spread received on fractional gold.

    Check it out:

    Gold spot: $1471.16

    Random Year Gold Eagles
    Full Ounce $1526.21
    Buy Back $1473.22
    Spread: You purchase at 3.6% over spot. You sell back .14% over spot. You lose 3.46%

    Random year 1/10 oz Gold Eagle $164.61
    Buy Back $152.12
    Spread: You purchase at 10.6% over spot. You sell back at 3.3% over spot. You lose 7.3%

  19. -jeffB

    -jeffB Greshams LEO Supporter

    Ah, my bad. When you said "7.5% premium" for the fractionals, I thought you meant they were selling for 7.5% over spot, not that the spread was 7.5% greater.

    I'm guessing this reflects those "fixed-overhead" costs I mentioned, although that wouldn't be relevant if you're (say) selling ten of them at a time.
  20. GoldFinger1969

    GoldFinger1969 Well-Known Member

    I haven't bought any in years from my LCS, but I recall that while the premium on half ounces was < 10%, for 1/4 ounce it was about 20-25% and for 1/10th or less closer to 40% premium to spot.
  21. TheFinn

    TheFinn Well-Known Member

    It doesn't have to - it's money.
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