On Friday, August 25, The Wall Street Journal printed an article which seemed bullish for gold on the surface, but they used some bizarre charts and comparisons to try to show that stocks are better than gold in the long-term – carefully selecting their beginning dates and percentage benchmarks to fit their case.
One chart was particularly bizarre, saying that “In only four of the past 40 years has gold finished ahead of the S&P 500 and Dow when all were up at least 9%.” That 9% benchmark was a tortured attempt to fit the current 9% gain in the S&P 500 into the historical record of “years like this.” But, even to the casual observer, it’s not important which investment goes up the most when all three are going up. What’s more important is what gold does in years in which the stock market goes DOWN. The stock market declined significantly (by double digits) in 1973, 1974, 1977, 2002 and 2008. Gold was up strongly in those years.
Why didn’t the Journal include a chart like this? Why didn’t they include a long-term comparison of gold and stocks – like we do here below – showing that gold is up 350% vs. just 66% to 90% for stocks since 2000. At the end of their article, they did admit that gold outperformed stocks in the years before and after the terrible 2008 crisis, the worst since the 1930s: “Stocks gained 23% and gold 24% in the crisis-recovery year of 2009, and 2010 told a similar story, with stocks up 13% and gold up 30%.”
If you put all those numbers together, gold gained 68% in 2008-10, while stocks fell 9% in 2008-2010.
The Journal’s main chart was also somewhat misleading, saying “Gold this year is rising faster than the S&P 500 for the first time since 2011, as investors resort to an investment that offers no claim on profits and yields no periodic return, reflecting rising perceived uncertainty.” Wow! “No profits” and “no periodic returns”?
Gold is up 350% since 2000 (and silver is up 225%). In a world of ultra-low interest rates, it is irrelevant to say that gold offers “no interest income,” since short-term money in the bank offers microscopic yields with none of the capital gains potential of gold and silver. As for “perceived uncertainty,” that is only one of gold’s many roles in the world. Wall Street loves to color gold as a “metal of fear,” when about half of all demand comes from jewelry, by which newly-wealthy people buy beautiful gifts for their loved ones!
Gold vs stock is apples vs oranges. Owning stock is owning a piece of a company that produces wealth. Gold is a commodity. Owning gold is preserving the value of wealth you currently own by holding actual money (dollar bills are NOT money). Gold only goes up in value compared to other commodities (like dollars). Stock goes up in value because when the company you own a piece of creates wealth, the wealth is leveraged through investments in the wealth-creation process which increases wealth-output and the value of the stock you hold in the company you own a piece of.
There are numerous stocks NOT issued by companies that produce wealth. Many entities issuing “stocks” only shuffle paper back and forth to produce a profit. When the SHTF these issues will vanish like hot air. caveat emptor
Too bad this article is guilty of the exact same cherry picking they accuse the WSJ of doing — but then again they have to do that to sell gold as an “investment”. People who don’t understand the difference between buying gold for security and stocks for investments shouldn’t be doing either. Yes, you can *trade* in gold to make money, but that’s no different than trading in anything else like stocks or pork bellies, its *trading*. Again, if you don’t understand the difference between investing and trading, you shouldn’t be doing either.
Well said Chris and all completely accurate. Then again, articles like this one are intentionally targeting a very specific audience and by trying to leverage fear, general ignorance of long-term financial market trends and returns on investment. All by using highly selective, cherry-picked data points to drive sales of what he makes his living selling. While there is nothing wrong with owning a small percentage of one’s overall net worth in gold, silver or any other precious metals (usually 3 to 5 percent) as an inflation hedge and as a form of internationally recognized currency, what the author is trying to conflate using very selective data points is that gold is really some sort of special “investment”.
One, it is NOT an investment in the sense of it paying any sort of predictable rate of return or demonstrating any consistent annual growth rate in its value. Looking at gold specifically over the last 100 years clearly shows this and when plotting gold against the DOW or the other major indices over the same time frame, gold has actually badly under-performed those markets. That is why the author selected the very narrow and specific time frame he did. To show gold in a very positive light at a time when the markets were under pressure and experiencing a correction for one reason or another. Real nnvestors understand such times are actually opportunities to add to their investments, as both traders and the general public gets spooked into selling and usually incur big losses as a result. Again, you are correct that such people who don’t have a long-term view or lack sufficient financial understanding of what is occurring in the markets, at such times, shouldn’t be there.
Gold, Silver or any other precious metal is primarily an inflation hedge, that if held over long periods of time (10, 20, 30 or more years), retains its value relative to the currency or currencies it is pegged against. It is not something anyone should be buying with the expectation of its value rising steadily year after year, as it is a highly cyclical commodity and as such will encounter time frames when its value is either flat or decreases based on a whole host of global variables. You don’t “make money” nor do you “lose money” over the long-term. As an inflation hedge, you simply retain the value you originally put into the acquisition of gold relative to the depreciating value of the fiat currency it is pegged against. In dollar terms, as the dollar continues to lose value over time, due to the planned annual rate of inflation the Federal Reserve tries to engineer into the economy, the value of gold appears to rise. When in actuality, it is the amount of depreciated dollars it takes to buy the same amount of gold.
Oops. That last paragraph may have been too technical for most folks to fully grasp. I apologize for that, but it was the most direct way to explain how precious metals really work over the long haul. Chris, you probably understood what I just said as your post seemed to be written by someone who understands the distinction between what constitutes a real investment and what is merely being [positioned as a potential short-term trade.
That 25 cent piece (silver quarter) that bought a loaf of bread in the 1950’s and that currently costs about two dollars will, if wheat, etc. remain as available, still purchase a loaf in the year 2100, even though in dollar amounts the price may be $9.75.
Yes Ivan. The value of the silver (or gold, platinum) remains constant, while the value of the dollar depreciates due to inflation that our government continuously tries to create and manipulate. Thus your example is a demonstration of how the last two sentences in the third paragraph of my post above would play out in the real world. Again, the silver did NOT appreciate in value. Rather the fiat currency, the U.S. dollar, has depreciated in value over time. So it takes more dollars in your future example to buy the same amount of silver, bread, etc.
Yes, the intention was to give a brief example of what you said such that those less familiar with the subject might quickly understand. You did a good job nevertheless, as usual.
Have a good week and safe one. Haven’t checked on that Atlantic storm lately, so I’ll go see what’s happened so far.
Its only holding real value, and at that only long term is it reasonably guaranteed to do that, that’s not an investment, that’s a hedge against inflation. Meanwhile when you invest you are doing 2 things (hopefully), 1) helping the economy to grow by adding productive capacity, 2) earning a return on that investment by reaping some of the value of that new productivity. An ounce of gold is not productive, it just represents value. A share is partial ownership in something that can grow (or shrink) and if it grows so does the value of the share (real value, which can differ significantly from price). Yes, its risky, the enterprise can fail as well as succeed. Investing is how you partake in and extract value from the growth of the economy.
As further explanation: you can buy a piece of land, but its not the land that determines whether its for security, investment or trading, its your intention, i.e. what you do afterwards. If all you do with the land is hold it, that’s for security, its something physical and real, it will never be worth nothing (unless it literally goes underwater). If you develop the land, say plant crops, build buildings for lease, start extracting resources, that’s an investment. Its now producing, i.e. creating value. If you buy the land hoping that a freeway will be built nearby and the price will go up, that’s trading (aka speculating), the old buy low, sell high. Land is one of those few things that can be any of the above, gold can only be for security or trading, it cannot be productive and create new value (now if you buy shares in a gold mine, that could be investing or trading, again, depending on your intent).
Who do you think supports the Wall Street Journal. I certainly isn’t gold miners. Wall Street understands Gold all right, they just don’t want to give it acknowledgement. We have been complaining about news outlets and the Media for years now. they are only interested in preserving their own turf. If there is money in the equation some where , there is where you will find the news, news papers and all other media. Let’s just say the news isn’t what it used to be.
The Journal is to Wall ST. bankers and brokers as The N.Y. Times is to Progressives.
Love the possible clarity of this article. I’ve been waiting see an article as this. I’ll be buying GOLD this week.
Also look at old valuable coins Luis. They also have good value due to limited supply, When Franklin Rosevelt made it illegal to own gold back in the 30s. Treasury melted all the 20 dollar gold pieces in existence except 11 they could not find. They finally tracked down 10 of them leaving just one coin unaccounted for. When that coin became known the Government confiscated it. They sold it at auction and split the proceeds with the man somewhere in the world who had it. The coin sold at auction for over 7 million dollars.
You’re actually pointing out the value of investing in numismatic grade coins, which is a real investment strategy. As opposed to simply buying base gold, silver or old, low grade or current date precious metal coins. The latter being priced at current commodity price values. Essentially melt value. The coin you mention fetched $7 million not because of the gold content in it, but rather the rarity of the coin itself. The last one from that era in the hands of a private owner and not the government. Yes, numismatic grade coins are an outstanding investment for those that understand what to look. Like anything else, people have to educate themselves on the subject rather than simply walk in to a coin dealer’s shop or buy from some on-line huckster saying what they’re selling is “rare” or “investment grade”. Most people don’t know the difference between what constitutes a truly rare date coin or even what MS-60 and what MS-70 means in numismatics. Those are the folks that get taken to the cleaners by over-paying for what are essentially common date, low grade old coins.
Buy silver instead Luis. It’s cheaper, Everyone know what A SILVER COIN IS. It doesn’t have to be assayed. In small denominations it is easier to accept. I bought a penny this week This was not a purchase of necessity. It was because i wanted it. Now, this penny is a 1909 CVB. That is the name of the designer. those initials were imbedded into the penny, but it is an aboration, those initials weren’t supposed to be there. This penny cost me $45.00. The following day, I received advertising to sell me that sane penny from the same company for $50.00. See I MADE $5.00 in less than 8 hours.
Take the time to educate yourself a bit better before simply rushing out to buy gold. Just a suggestion Luis.
This article in the Wallstreet Journal, a mainstream Fake News outlet, is trying to convince average Americans that gold and silver are not worthwhile investments. Always look for the ulterior motive.
A small investment in gold (say 6 to 8%) is a good idea to hedge against inflation. A large investment is for rich traders and not much use for the average person. But if it makes you feel secure and happy go for it. See the movie “Treasure of the Sierra Madre” with Bogart for a view on the perils of getting the “gold bug.”
With a barter economy, silver is much easier to make change with due to its lessor exchange value.
If buying a car, maybe gold bars or ounces. Milk and bread: silver. A silver quarter is still equal to a loaf of bread.
There is a reason why gold (and silver) have been the mainstays of value and commerce since before recorded history. Gold and silver are a physical commodity recognized around the world as that standard. Today, all money is nothing more than digitized, fiat fiction that can become nonexistent with a single keystroke.
One reason why out money was once backed by gold and silver was to limit government spending. The value of the dollar was set by the amount of physical gold reserves held by the government. Today, there is serious and well founded concern that the vaults at Fort Knox and the FED in New York are empty, they contents sold off to cover runaway deficit spending and the reason why the deficit ceiling is continuously raised year after year. What most people don’t know is who has been “buying” our debt in recent years, the excess government bonds that don’t sell on the market. The FED, a private banking cartel, puts us in more debt by buying those unsold bonds with more digital “money”. There is only one end to the game, eventual, explosive hyperinflation and the collapse of the dollar as a viable currency. Venezuela is currently suffering runaway inflation, Zimbabwe is another recent example and Germany suffered from the effect of unlimited fiat money creation during the early 1920’s where a postage stamp cost more than one BILLION Marks. Housewives were using worthless paper Marks as stove fuel to cook family meals.
Today, I consider the “official” U.S. fiat dollar as worthless as Bitcoin, another cyber money that can vanish in an instant.
It’s like the TV commercial for gold says “If you can’t hold it in your hand, do you really own it?”
Way to go, Bob L.
There might be some downside to your argument. If you can hold it you have to secure it. Before you buy gold it might be advisable to have it assayed for purity if you are buying a considerable amount. When it comes time to sell it again it will have to be tested. No interest will accrue and how lill its value be measured IF there is no agreed upon standard. Food, shelter, other commodities or safety from the individuals with guns.
If what you call digital money becomes useless and gold becomes “money” the ensuing chaos will make bullets and guns items of very high value. Gold is a good hedge against inflation in a stable economy but when/if it becomes “money” you better have food stocks, water, guns and be part of a self sustaining community.
YOU WILL CERTAINLY HAVE TO PROTECT IT. THE BIG DIFFERENCE IS IT’S VALUE IN KEEPING YOU ALIVE IF THE USA dollar ceases to be taken for food. I don’t want your dollar. It buys me nothing. If I sell you food, I want gold and silver. I also want to buy real estate in a foreign country. It might grow something.
Well Bob, surely you would think the individual citizen in this country would understand your post, but they don’t. Rephrase that, they don’t want to admit that Bob. My neighbor who is in his late 60s seems to think the USA will always come through. I’m 89 and could not convince him that he needed to help himself survive a holocaust. If you don’t hold it in your hand you do not own it. I am not going to be here long Bob, but maybe you will. I have informed my children and great grandchildren that they need 3 things to survive the next 50 years. 1. A place to hide and live to survive. 2. Multiple arms and ammunition, 3. Silver coin, gold and food. I have suggested Silver coin Bob. You know it’s content up to 90% silver. It doesn’t need to be tested. It is the fastest way to secure survival. Here is a far out example: When Roosevelt made gold illegal to own the various mints took all 20 dollar pieces in existence and melted them down. There were 11 short. Over the years all were found and confiscated. There was just one left. When that one coin was finally found the Government of course confiscated it. In court is was arranged that the coin would be auctioned and the proceeds be divided between the Government and the owner. That last $20 dollar gold piece auctioned for $7,000,000 dollars. I think you should be aware that some old coins can really appreciate in value. So, Collect them and wait for appreciation.
So you own gold. What is its value on any given day if you try to use it as currency? Barter…not predictable. Metals should be a very small percentage of a balanced investment potfolio. Fear is a manipulative device to sell gold to people who should be getting guidance from a fee based, reputable investment firm.
Evy, precious metals are not really investments, but rather hedges against inflation. Two silver dimes will, as in the 60’s, still get a gallon of gas. A silver quarter will still purchase a loaf of bread.
Good Post Ivan. That is exactly right.
Well EVY that is great in theory but what happens when you sell. Do you get paper dollars in return for your investment or can you trade for a cow. Let’s say your investment gives back 10 dollars for every one you invested. Nice return you say. What if nobody will take you paper dollar for value. What do you do if you can’t use it for buying toilet paper. In fact maybe toilet paper becomes more valuable. Gold and silver creates it’s own “good faith value” rather than the good faith of the government of the USA today. As a matter of fact, in times of severe crisis, the government will come after all the gold and silver it can find. I you have it and they find it, you will loose it. Why then doe they give such value to Gold and Silver?
Timing is everything. If China replaces our dollar in the world trade because it will be backed by gold. I is already too late. Your screwed.