I quote myself:
Let’s do the comparison. One dollar invested in the S&P 500 in January 1, 1978 would be worth $24.60 in Dec 31, 2008. Cite . Note that I picked an endpoint during one of the worst bear markets of the post-war era.
An oz of gold was worth about $170 on Jan 1, 1978 and $875 at the end of 2008, coming off of the worst post-war financial crisis when gold should be worth zillions. Dividing, $1 of gold bought in the beginning translates to $5.14 now.
5.14 << 24.60.
Hey, gold might be a terrific investment going forward. But it sure has been a dud in the past.
What do baseball cards, art and gold have in common? They’re really really cool
As an investment, gold (or gold certificates) have a property that offsets its high volatility and low long-run returns. It might be negatively correlated with the stock market, such that it “zigs” when the stock market “zags”. In the technical parlance it may have a negative beta. (The paper below attacks this hypothesis, but it at least finds that gold is a near-zero beta asset.)
For those interested in investing in gold… I’d recommend other investments. But if you’re really really adamant, you should at least read about its properties from someone other than a salesman or political commentator, right? Here’s a link: !PDF! : deepblue.lib.umich.edu/bitstream/2027.42/63919/1/fei_fan_2009.pdf The author characterizes gold as just another foreign currency, albeit one that doesn’t pay interest.
The author also debunked the notion that gold is a particularly good hedge against inflation: it isn’t.
Previous threads:Is there a GQ response to the right-wing marketing of gold? Why do ultra-right-wingers flip out over gold?
I predict: One year after the Fed funds rate hits 3.75%, gold will be worth less than it is worth now ($1561 on April 11). (Also the Fed funds rate will hit 3.75% some time in the next 10 years, possibly as soon as late 2016 or more likely 2017.)