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Gold As a Long-Term Investment... And As a Short-Term Trade
The investment media regularly proclaims that Gold is a terrible investment and that investors should shun it in favor of stocks.
However, the fact of the matter is that Gold has dramatically outperformed the stock market for the better part of 40 years.
I say 40 years because there is no point comparing Gold to stocks during periods in which Gold was pegged to world currencies. Most of the analysis I see comparing the benefits of owning Gold to stocks goes back to the early 20th century.
However Gold was pegged to global currencies up until 1967. Stocks weren’t. Comparing the two during this time period is just bad analysis.
However, once the Gold peg officially ended with France dropping it in 1967, the precious metal has outperformed both the Dow and the S&P 500 by a massive margin.
See for yourself… the above chart is in normalized terms courtesy of Bill King’s The King Report.
According to King, Gold has risen 37.43 fold since 1967. That is more than twice the performance of the Dow over the same time period (18.45 fold). So much for the claim that stocks are a better investment than Gold long-term.
Indeed, once Gold was no longer pegged to world currencies there was only a single period in which stocks outperformed the precious metal. That period was from 1997-2000 during the height of the Tech Bubble (the single biggest stock market bubble in over 100 years).
That’s Gold as a long-term investment. But what about as a short-term investment?
Since the Crash hit in 2008, the price of Gold has been very closely correlated to the Fed’s balance sheet expansion. Put another way, the more money the Fed printed, the higher the price of Gold went.
Gold did become overextended relative to the Fed’s balance sheet in 2011 when it entered a bubble with Silver. However, with the Fed now printing some $85 billion per month, the precious metal is now significantly undervalued relative to the Fed’s balance sheet.
Indeed, for Gold to even realign based on the Fed’s actions, it would need to be north of $1,800. That’s a full 30% higher than where it trades today.
Thus we have an asset class that historically has outperformed stocks, trading at a discount to the primary driver of its prices in the last five years. Seems like a set up worth considering….
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Best Regards
Phoenix Capital Research
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The reasons why this is not "analysis"; or if it is really thought to be so by the author, it's a rather sad thing. One. We don't know what "the primary driver" of the gold price has been since 2008. Whatever it has been; it's a human opinion; but we don't know what human opinion. It's a certainty that there is no little clockwork mechanism connecting the FED's liquidity generating with the gold price. Two. We don't know if this unknown human opinion has now changed; it may have or it may not have. This is called rational analysis. The article is called propaganda; or, "hey everybody, look at my super opinion". Only the future will tell. It's possible the sheeple have made a self-fullfilling prophecy that the stock market will satisfy their need to stay ahead of inflation; and if so, they will cause this to happen. The sinister Gorilla lurking in the room with the Gold price predictors is the hedge funds and large money managers in the big ETF's; such as GLD. they are strictly momentum followers; if the price doesn't go up for a long enough period, they'll begin a self-validating process of selling. We can only be spectators.
fofoa has a new piece today that explains why/how physical trading has almost zero effect on the gold price.
http://fofoa.blogspot.com/2013/10/gold-as-forex-currency.html?showCommen...
The reason is that the FOREX markets trade gold in volumes that are 10s to hundreds of time larger than any physical trades.
If you do not understand this you will never see how it is futile to think you can influence the gold price by physical acqusition. Not one other gold writer has noted this fact and it is critical to understanding gold.
"For more market insights as well as several FREE investment reports, swing by..."
No.
It's risky using the Dow as comparison to anything. Since its components come and go with a bias towards the winners...it is not statistically valid to use it as a peg. I wonder what the Dow would look like today if it kept its 1972 30 companies... The comparison to that index would make gold look even better (or even more in a bubble)
Foxenburg; true but also:
History never repeats itself but it rhymes.
John Robert Colombo (not Mark Twain)
Bitcoin now up to $163. As the central banks apparemtly do not know how to naked short it, it may be a better index of the dollar debasement until the physical and paper gold markets separate.
We need a chart of BTC vs Dollar Index.
nice comment
That's the most sensible comment ive ever read about bitcoin
The current gold price is determined in the various derivative markets. The actual sale of physical is trivial in determining the price of gold. This will continue until the paper and physical prices split apart. As long as the right people can get the physical they want everything will remain the same. When it changes it will likely do so suddenly and violently.
Ever wonder why China doesn't just buy all the GLD out there and get another quick 890 tons? They want gold and they sure have the money (1.28 trillion in treasuries!). Do you suppose there is some kind of deal happening? I do.
GLD trades are settled in dollars, not physical gold...Trading in GLD is the same as using chips in the casino... they ae as good as dollars until the casino goes broke. The difference between GLD and spot gold is the risk (of default) premium. The two have been seperating more and more lately.
Link to Gordon Gekko's Real Gold chart:
http://www.gekkosblog.com/
Can anyone read that graph? I sure can't.
GFO
A better correlation is tracking gold prices to the number of margin hikes the CME imposes.
Sadly, Past Performance is not an Indicator of Future Results
Exactly. Except in the world of human perceptions where it perpetually is; to the consternation of the latest group that managed to forget this simple fact.