The following chart was published on Clusterstock yesterday with commentary explaining how this proved that stocks were no longer a good place to invest…
As the S&P 500 was the only major asset class to have shown negative results over the past 10-years, they felt it was obvious that Gold, Long-term Bonds and Commodities would continue to be the best place for the next decade. In other words the conclusion was that new money should be allocated to whatever had just finished going up the most!
I hear ads for gold every day shouting that, “I invested in gold 10 years ago and it’s the best decision I ever made.” “Gold has tripled since 2000. Get in now for the move to $3000 /oz.”
How many times have you made great profits buying something that just finished tripling? How did your real estate purchase in 2006 work out using that reasoning?
This week’s Parade magazine [normally NOT a paragon of business news] has an article from Wharton professor Jeremy Siegel asking “Should the U.S. sell its gold?”
He noted that the United States ended its gold-based mon etary system in 1971 yet we maintain about $288 billion in bullion reserves [ > 8000 metric tons]. This could theoretically be liquidated today to pay down at least a portion of our national debt.
Siegel notes that even after the recent run-up in gold prices and the big sell-off in stocks since the 2007 highs;
- Gold has returned 8.86% annualized
- Stocks have returned 9.76% annualized
Bloomberg.com noted that Gold has risen to over $1100 /oz. (and had touched a new all-time high of $1226.56 recently). Despite 2009’s big run up, they pointed out that anyone who bought Gold at its $850 /oz. peak in January of 1980 would have had a better return in an interest bearing checking account.
So much for Gold as a long-term inflation hedge.