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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Phoenix Capital Research