Gold Beat Stocks Except During the Tech Bubble

Phoenix Capital Research's picture

Warren Buffett once noted, Gold doesn’t do anything “but look at you.” It doesn’t pay a dividend or produce cash flow.


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).


In simple terms, as a long-term investment, Gold has arguably been the single best passive investment of the last 40+ years.


Moreover, I think there is considerable value in Gold today as an investment. Indeed, I can make the arguments that Gold is both cheap as a cigar butt and as a moat.


If we look at Gold as a cigar butt (trading at a discount to its intrinsic value), we must first consider Gold’s intrinsic value.


Many investors argue that Gold has no intrinsic value. I disagree with this assessment as it does not consider the nature of the financial system.


Let’s compare Gold to the US Dollar.


Every asset in the financial system trades based on relative value. Ultimately, this value is denominated in US Dollars because the Dollar is the reserve currency of the world.


However, even the US Dollar itself trades based on relative value. Remember the Dollar is merely a sheet of linen and cotton that is printed by the Fed and is backed by the full faith and credit of the Unites States.

In this sense, the Dollar’s value is derived from the confidence investors that the US will honor its debts.


A second item to consider is the fact that the Dollar’s value today also derived from the Fed’s money printing. Indeed, a Dollar today, is worth only 5% of a Dollar’s value from the early 20th century because the Fed has debased the currency.


As a result of this the world has adjusted to this change in relative “value” resulting in a Dollar buying less today than it did 100 years ago.


In this sense, Gold’s value is derived from investors’ faith in the Financial System (ultimately backstopped by the Dollar) and the Fed’s actions.


Gold also moves based on investors’ confidence in the system. If investors’ are afraid that the system is under duress (meaning that they have little confidence in the Dollar-based financial system) then they perceive Gold has having a higher value.


Similarly, if the Fed prints Dollars by the billions, Gold is perceived as having a higher value relative to the Dollar.


Thus, Gold does not have any less intrinsic value than the US Dollar does. In that regard we can price it relative to the Fed’s actions and to the fear of systemic risk to get an assessment of its true value.


With that in mind, today Gold is clearly undervalued relative the Federal Reserve’s balance sheet (see Figure 3 on the next page).


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. Eventually this relationship will normalize. Gold is clearly being manipulated lower.

For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:


Best Regards


Phoenix Capital Research






Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Quaderratic Probing's picture

For those who load up at $1800 because gold was going to $5000, not so much

CheapBastard's picture

why are all the Chinese buying the shiny metal?

TrulyStupid's picture

Gold is money.. a kind of money that is ideally suited for savings, particular in times of monetary inflation (expansion of the money supply) which robs savers of their purchasing power.

There is a reason that central banks store gold as an asset, implicitly recognizing its value ins spite of their public denials...they know it is moiney and ultimately what value their fiat money has is backed by this and other real assets. Some have argued that gold became worthless when USD convertibility was suspended fin the 70's ... but the reality is that the USD was devalued and the converftibility traded in free gold marlkets soared 10 times  in the next decade, at one point to 20 times. The USD tail does not wag the golden dg.. itsw the other way around.

RagnarDanneskjold's picture

Gold was outperformed by stocks from the early 1980s until 2000, it's just that for someone from 1967, they didn't fall behind until the 1990s. Whenever someone says asset X has outperformed assets A,C, Y and Z since Year XX, it's usually because asset X has performed very will in recent years. If I only had this type of analysis to make my decision with, I would buy whatever has lagged for 10 or 20 years. Other assets that delivered huge long-term returns were Thai real estate up until 1997, Chinese stocks until 2007, Japanese stocks until 1989, etc. Now, show me an asset that has consistently returned 6% per annum versus one that is up 5% per annum, I'm intrigued, but when performance relies on a multi-year move of hundreds of percents, I'm skeptical of future performance.

That said,  I still own gold beause when gold moves, it moves fast and this is not the 1970s, but the 1930s. Unless someone thinks another 1980-2000 period of Great Moderation is coming/already started, there is no reason to change from gold to stocks now, after an almost 40% correction and a massive relative move. The SPY/GLD ratio has gone from 0.60 (0.6 GLD shares worth 1 SPY share) to 1.50. That's a 150% gain for SPY relative to GLD, or a 60% drop in the value of gold relative to stocks.

dentist's picture

did anyone notice that the decision by China to stop investing in the US dollar came at the same time as the new agreement to ease sanctions with Iran?

Do you beleieve this is a coinsidence? I wrote an article on this at

logicalman's picture

One day, the important question will become 'do you have Au/Ag or don't you'

Dividing by zero (the approaching value of FRNs) is always a problem.

JamesBond's picture

As the price of silver drops, people are buying it up in droves.  As the price of stocks shoots to the moon, they are being purchased in droves.  

Traditionally, one of these buying techniques is a winner and one is a loser.  




Zhanglan's picture

I don't trust this guy's arithmetic: $1800/oz is not 30% above today's Gold price - it is almost 50%. The rest of the article is similarly superficial and selectively aspirational rather than factual

moneybots's picture

If you start at 35 dollars an ounce and link the stock market to it, but if you start in 1980, gold dropped to 250 from 850, while the stock market floundered until 1982, then started ramping upward. If you go back to 1933 when gold was pegged to 35, the stock market ramped up to 1971, while gold remained 35.

Banjo's picture

How does an index take into account a worldcom, enron, lehman and other critical failures. If world com is 2% of an index and investors lose their shirt does the index permanently reduce by 2% or does the substitution of new companies that replace the one that failed push the index back up 2% as this is new capital in the market?


If the latter is the case the market index chart above paints a far worse picture.

0b1knob's picture

"gold doesn't do anything" as opposed to paper fiat or stock certificates which can be used to wipe your ass.

disabledvet's picture

a better chart is simply gold versus the dollar. gold prices aren't be manipuflated lower...but the dollar sure is. I fail to see the causal relationship between gold and equities...but there is definitely one between gold and the dollar and equities and the dollar. gold is "peaceful" when it comes to printing Clownbucks. Equities are a raging inferno when the dollar is getting crushed. what does gold care if the Government deems all debt "at risk"? meh, "no counter party here" hehehehehe. that isn't true of equities...blow up the debt markets and equities can go from looking "being in the Great Moderation" to "I'll take Bear Stearns for one dollar...and you can thank me later." in other words equities require anormous amounts of analysis to determine not just "fair value" but "value period." with gold...and of course this is the error of the piece...why do I care about price? "I've got it, I have it...if you don't you're the one with the problem." again...a PRICE is something set in the stop telling me that "gold is undervalued" and "you think the price should be such and such." I think a lot of things...but thoughts are thoughts and most simply don't act on them nor do they really mean much because "it's about something happening in the future." in other words "equities is where all the thoughts are" because so much is based upon price...yet to even determine "fair value" for an equity is well nigh impossible. now I'm going to say what the right "price" for an equity is? by definition that is "to be determined." in other words "the market opens Monday...they'll determine the price" and why a CEO who's stock price is soaring should never comment on "value" of said price. the price is the price. same goes for a Treasury Secretary I might add...the comment on the dollar is "no comment." interesting the dollar is determined to have a VALUE....never a price. REALLY? "relative to what?" and the answer to Americans is of course gold. a more interesting vein to mine is "what is a debt?" I've always assumed a debt is an obligation to repay...and I ain't talking in the future but in the here and now. this is where the awesome power of gold can be seen most easily. if you have the gold "somebody owes you" not the other way around. in other words a debt is a "promise to repay." at a certain level that's all QE is...the Government has "promised to repay" and is in fact doing so by printing the money into existence and repaying the debt holders. (the debt itself is increasing interestingly...yet interest rates are falling. Why you ask? Well...this is obviously the realm of speculation but one possibility is that the Federal Government is learning to do a whole lot more with a whole lot less. Not saying that is the reason why gold is falling in price here...but it sure stands to reason. Bottom line is that there is a lot of gold out there and if the Feds "merely" start paying their "debt to society" as it were gold will decline in price. silver is very interesting to me here because it has truly gotten crushed. there is truly staggering amounts of silver in the world yet to be mined...yet if one truly believes the dollar's days are number that price...or cost to purchase...looks like an extreme value to me. "dirt cheap" as it were.

JamesBond's picture

I have been buying the silver dips (bullion 1 oz bars).  And will continue each month as long as the price declines.  It is the only 'asset' I am purchasing at this time. Holding onto real estate assets, no debt, and cash in vault.  I have one bitcoin because my stupid business partner used our account to get it.  

Sufiy's picture

The new Catalyst:

Peter Schiff: On Taper, China's Bombshell Announcements For Treasuries, Dollar And Gold GLD, MUX, TNR.v, GDX

  Peter Schiff talks about the bombshell of the year - China has announced the Mother Of All Tapering -  PBOC Says No Longer in China's Interest to Increase Reserves. China is ready to reduce its balance sheet and they do not have to sell any US Treasuries - during the operation Twist they have used the golden opportunity and rolled over the long term treasuries into the shorter maturities. China can just allow US to repay maturing US Treasuries. We do not think here that they will accept Bitcoin. They have made this announcement after the record buying of Gold and some people are estimating that official Gold reserves are much higher than officially recognised today.   It means that if China leaves to its commitment - there will be no China's bid for US Treasuries of MBS - how FED can Taper now? They will have to increase the amount of QE just to keep the market from falling! US Dollar will go down with rising Interest Rates and additional strain on the economy and fiscal budget and Yuan will appreciate - and it was another bombshell: China will allow it to do so now.

disabledvet's picture

the Fed can "allow" interest rates to rise. right now they're manipuflating the dollar...but there is a point where currency markets start setting the rate of the value of your debt. China seems far from debt free to me. it's one thing to float the yuan versus the allow it to "trade freely" however could open China up to an awful lot of competition.

Flakmeister's picture

It would appear that the past few years have also not been good for the yellow metal vis a vis the market...

And this piece makes the rookie mistake of not including dividends...

Hey, there is a great case for gold, but articles like the above do not help....

Midas's picture

I have seen this comparison before and wondered about factoring in dividends on behalf of stocks, but on the other hand you have to consider survivorship bias.  I think the DOW is a shitty yardstick anyway.  I own precious metals and very few stocks, but I think Becky Q's sugar daddy does have a point.  I would like to latch into a stock that is going to perform like ExxonMobil did for the last forty years.  Talk about set it and forget it.  It spent the early seventies between 2 and 3 and is at 95 now.  You have the capital appreciation of gold with some dividends along the way.  I have been hoping for another meltdown to buy some, but the Bernank says "no can do."  Tyler hasn't convinced me to BTFATH.

Flakmeister's picture

A proper treatment subtracts a nominal "fee" for updating the index...

The dividends do add up, 40 years of ~2% is significant. For a while Gold was ahead of the S+P but no longer, I need to fire up the Excel model I once made...

new game's picture

my best guess is someone has something to sell. some gold maybe. that chart is terrible unless you are less than 40 and plan on living at least 40 more years. start dollar to gold cost averaging and hopefully you outlive the bear gold situation.

really not looking very good. next stop 1187.90, june low. if she breaks lower and close below june low, plan to keep backing the truck up til you are out of money. the bottom could take years. that is the way it is. down votes acomin - TIA, cause this is a better than .62 chance we hit the 20 year fab retrace. good luck...