Gold Trading Closes: Returning 29.7% For the Year, Doubles S&P 2010 Performance

Tyler Durden's picture

Some time in mid/late 2009, after becoming convinced that the stock market is a broken topological nightmare, with feedback loops that are so unpredictable to be virtually "skyNet" self-aware, and is in essence broken, we urged readers to pull all their capital from the stock market. This happened even as we grew increasingly concerned by the Fed's ongoing ruinous actions which anyone but the staunchest propaganda foot soldier realized were going to mean ongoing pain for all dilutable assets, including stocks and fiat currencies. As a result it became abundantly clear that hard assets such as gold, silver, non-nailed down park benches, bananas, hard liquor, stripper poles, and of course strippers, would outperform paper assets. Sure enough, with regard to the first, in May 2010, our skepticism about stocks was confirmed, and anyone who had limit sell orders likely ended up losing up to 40% of their capital with no recourse. Since nothing has changed in stocks, we repeat our warning that the market is at all times a few stray millisecond algos away from total meltdown. And as for gold: the 29.7% 2010 return is double that of the S&P. Which means those who did not play stocks and bought gold did ok. And even those who shorted stocks and bought gold, are still up about 15%. As above, little has changed to weaken our long-term conviction that gold (and silver, for those who can handle the added vol) is the natural antithesis to central banker lunacy. And that we will have a lot more of in 2011. Guaranteed.

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Cognitive Dissonance's picture

And don't forget Gold's cousin Silver. They are connected at the hip though the binding rope has some flexibility.

goldmiddelfinger's picture

Sounds like Redback Networks 12/31/1999.

Why don't you buy more?

Cognitive Dissonance's picture


I've been reading your blog three or four times a day and I love it. Keep up the good work and don't spare the Blythe Masters sarcasm even for the weak stomachs among us. :>)

BTW what's wrong with the "New Kids On The Block" that would make me vomit in my mouth? It's all just teen porn for the teens, right?

tmosley's picture


The trolls can all suck it.  

Turd Ferguson's picture

Yes and gold has an annualized average return of about 25% since this bull market began. Let's see: $1400 + 25% = $1750

At some point in 2011, gold will trade at $1750. Guaranteed.

ZeroPower's picture

I understand the basis for this argument, but im worried. I feel historical returns are never a good indicator of the future. Is there anything that would make you change your mind on the expected returns of PMs for 2011? Not critical here, just curious.

DeltaDawn's picture

As soon as you start to see governments act ethically and responsibly start to worry about the prices of precious metals going down.

Fred Hayek's picture

So . . you're saying this rise is never gonna stop.

drwells's picture

Bingo. Not until regime change, which is unlikely to be peaceful.

Hephasteus's picture

As long as I can watch stupid shitfucks tell people what's good to eat and whats good for them and bad for them on "The Doctors" and as long as these asswipe consumers who keep gobbling up igadgets. Gold is going up and dollar is going down. Because the servants of the dollars are too fucking greedy, too fucking stupid and too fucking crazy to stop.

SWRichmond's picture

Listened to a Max Keiser interview last night that someone had linked here.  He siad bluntly that America's rich don't know how to be rich, they're too "in your face" about it.  They are doing our recruiting for us.


Re: silver. Love the vol.  Gold is going to move my savings into the future and provide capital for myself and my offspring, while silver and silver miners are going to make me rich.


"Dilutable assets;" that's a keeper.

GetReal's picture

On the precious metals front, it's useful to recognize how important falling Treasury bond yields and negative short-term interest rates have been in the recent commodities run. Historically, the Philadelphia gold stock index (XAU) has advanced at a 23.0% annual rate when the 10-year Treasury bond yield has been below its level of 6 months earlier, but has declined at a -5.9% annual rate when Treasury yields have been rising. With respect to short-term real interest rates, the XAU has advanced at a 16.1% annual rate when 3-month Treasury bill yields have been below the year-over-year CPI inflation rate, and just 4.1% otherwise. Put falling Treasury yields together with negative short-term real rates, as we've seen during much of the recent commodity price run, and you'll find that the XAU has historically advanced at a 33.9% annual rate. Notably, Treasury yields have recently reversed course, and are now above their levels of 6 months ago. While real short rates are still negative, this has historically not been enough to overcome rising bond yields and produce positive returns in the XAU, on average, except when the Gold/XAU ratio has been well above 7.

In short, my impression is that investors chasing commodities have not paused to recognize that one of the major supports for this run - falling Treasury bond yields - has been knocked away from them. There may be some pure momentum remaining for commodities, but this is now purely speculative. A much better environment for gold stock holdings would include falling Treasury yields, negative real rates at the short-end of the maturity curve, reasonable valuations of gold stocks to the bullion (which is presently still the case), and some amount of downward economic pressure, such as a Purchasing Managers Index below 50. The present Market Climate for precious metals shares isn't terrible by any means - it's just not positive anymore.

akak's picture

Please explain gold and silver's strong price rise during 2004-2006 in the face of steadily rising interest rates.

SWRichmond's picture

It's even more useful to recognize that the principal driver for precious metal prices, an underlying conviction in the collapse of "dilutable assets" such as paper money, paper promises, paper precious metals etc. hasn't subsided at all, it has accelerated. The underlying destruction of the productive economy has been papered over, nothing has been solved. 

Trade bond yields if you want to, but IMO you might also ask what happens to the U.S. dollar in the event of a sustained trend of rising interest rates.  How does the U.S. government pay its debt under those circumstances?  What happens to the Fed's balance sheet under those circumstances?  Will those circumstances be allowed to occur?

omi's picture

And COMP will double, that'll show 'em!

akak's picture

Even that bucket of turds, JohnnyBravo, had the miminal level of decency to flee from ZH once his ridiculously pro-fiat, anti-gold predictions were proven flatly wrong one too many times.  Or maybe his mommy just changed his curfew hours and computer access.  But in any event, it is interesting to see how the lifespan of any given troll here seems to be shortening as time passes.

traderjoe's picture

No, Johnny thought gold was in some sort of rising wedge and thought he could trade it based upon technicals. He didn't understand the money aspect of it. I did find some of his strings to be utterly repetitive and boring -like when he railed about paying a premium for coins. But he wasn't a troll like Harry or toothingus or gloomboom. He just repeated himself too much but had the decency to admit he was wrong.

msjimmied's picture

They don't have what it takes to hang with this tough crowd. Say anything dumb here and you will be taken apart with surgical precision. Paid trolls don't have nuanced thoughts, or passion. Their pay grade guarantees it.

High Plains Drifter's picture

Where in the hell is that chumpstain Bravo?

MGA_1's picture

Well, the flash crash happened on a 3% down day for the DOW, so IMO it didn't exactly come out of nowhere, but that certainly doesn't mean it couldn't happen again.  I think the market will continue to melt up 20 points a day until we have some sort of crisis again.  BUT, this should be a good year for gold !

breezer1's picture

thanks all ZH staff and all posters for a very informative and highly entertaining year. and a prosperous new year to all.

ranrun's picture

Is that with the S&P priced in USDs?  Bernanke is a douche. Gold bitchez!

midtowng's picture

But it's a bubble. And you can't eat it. And it's better to own shotguns and canned food. And it's about to crash to worthlessness.

(circa every year since 2005)

Mad Max's picture

Yes, gold "returned" 29.7% for the year.  How does that fare on an inflation-indexed basis?  Oh, right.  What's one divided by one?  Except that your 29.7% "return" roughly keeping up with inflation is taxable, probably at 28% if you were smart and held physical.

My point is not that gold is a bad investment - it's certainly beating most other options right now - but that all of us non-banksters are still being looted, even if we take defensive measures.  The defensive measures just moderately reduce our current loss.

And I'm wishing I'd put my fiatscos in silver a year or two ago.  But I digress.

geminiRX's picture

Move to Canada and start a tax-free savings account. Stuff it full of CEF and PSLV stocks on a yearly basis and give the government and the Fed the middle finger!

SWRichmond's picture

Or, buy all of those things and more in you IRA...and be ready to cash it out when the dot gov tries to save you from yourself and turn it into a Treasury Annuity.

Hephasteus's picture

Taxes? Who's fucking paying those this year. That was last decade.

midtowng's picture

Spot gold rose 0.6 percent to $1,411.86 an ounce by 1305
GMT, on course for a 29 percent annual gain and a fifth straight
month of gains, the longest stretch of monthly increases since
late 2001.
goldmiddelfinger's picture


"The world economy is resting on policymakers in China. If the interest rate rises don't reduce inflation there, eventually the population could become very difficult to govern," said Peter Cohan, a financial markets commentator in Malborough, Massachusetts.

"If the resulting instability leads to a decline in Chinese demand, those betting on a weak dollar and ever-rising commodities prices could be in for a world of hurt"

Bay of Pigs's picture

And who the hell is Peter Cohan? Never heard of him.

Nice try, move along...

traderjoe's picture

It is always possible that gold and silver decline in price if there is a widespread market decline as margin clerks sell what they can. But is also possible - and more likely IMHO - that PM's hold steady or rise as people realize the fiat endgame is near. Eventually all PM's will decouple from paper assets as individuals look for some tangible form of wealth. The size of the gold and silver markets will be overwhelmed with the flight to safety.

A Nanny Moose's picture

I can only hope. I need to accumulate more

Red Neck Repugnicant's picture

This is somewhat misleading.

You've plucked out your favorite commodity and measured it against a basket of 500 stocks. That's cherry picking.  

Comparing apples to apples, if you measure a basket of commodities (DBC) against the basket of the S&P, the returns are nearly identical for 2010.

To get a true comparison, one needs to select a single stock or maybe a few of their favorites that they would have actually bought (like Apple - everyone owned Apple) and then compare it to gold. With those parameters, the comparison would yield dramatically different results. I don't think most readers at ZH just buy the S&P - most likely, they manage their money better, follow fingle stocks and simply pay attention.  Only truly comatose Americans and massive funds buy the S&P. 

You're probably right, though.  Any bet against the Fed will probably be profitable - their task is simply too big.  


akak's picture

Your mistake, one that is almost ubiquitous among the paperbugs and pro-fiat crowd, is in assuming that gold is "just another commodity".  Several thousand years of history, and even current central bank policy, refute that simplistic and erroneous thesis.  Or have world central banks started holding wheat, cotton and molybdenum on their balance sheets?

Red Neck Repugnicant's picture

Sure.  That's fine.  But just don't compare it to a basket of 500 stocks. 

And I'm not pro-fiat.  That's stupid. 

akak's picture

And I'm not pro-fiat.  That's stupid. 

I agree that being pro-fiat is stupid, but I merely mentioned that the error in your analysis was one that is ALSO made by most paperbugs and the pro-fiat crowd --- it did not necessarily imply that you are one or both of the above.  Your many posts in this forum, however, do seem to indicate a prediliction toward those tendencies, and away from the anti-establishment zeitgeist of ZeroHedge.

geminiRX's picture

If you're not pro-fiat and pro-gold - you must be pro-squirrel meat?

Confuchius's picture

You seem to forget.

Gold is not a commodity.

Nor is Silver.

They are real money and always have been.

Or maybe you think the world's criminal central banks store hundreds or thousands of tonnes of Au in their vaults by mistake and they should really be storing corn or wheat or barrels of crude?

Baskets of Gold?? How about baskets of red necks?

Tyler Durden's picture

Considering that the SPY and the ES are the two most liquid and traded instruments in the cash and futures market respectively, by the retail, hedge and the mutual fund communities which represent about 80% of the stock market by capitalization, and that 99% of mutual and hedge funds are evaluated by their performance relative to the broader market, your observation is just a little off.

akak's picture

RNR, when Tyler himself enters the fray to rebut a particularly disingenuous argument, that poster should consider themself SPANKED.

tmosley's picture

That's fine by him.  Any time Tyler responds to one of his comments, RNR immedietly drops to his knees and verbally fellates him.

Red Neck Repugnicant's picture

when Tyler himself enters the fray to rebut a particularly disingenuous argument...

And when tmosely himself enters the fray one should expect to hear the sound of flesh thumping against wood in the background.

akak's picture

I was in second grade once too.

tmosley's picture

I noticed that he doesn't even bother to try to debate anymore.  It's exactly like a second grader saying "nuh-uh!"

Red Neck Repugnicant's picture

Tyler - you filthy little tramp.  If you were a girl, I'd bend you over my knee and spank you with your hairbrush.

Everyone on planet Earth knows that the SPY and ES are used nearly exclusively as short-term hedges by quants and Ritalin popping 25 year olds in Greenwich.  

Furthermore, the SPY is probably the single, most popular hot potato that the algos play with to jam the market in whatever direction they want to protect the rest of their inventory. Hence, the liquidity. 

The SPY is a toy, not an investment - and you know that. 

And with regard to them being benchmarks.... yes, isn't that funny in today's age of HFT?  


tmosley's picture

Translation: *slurp* *slurp* *slurp*