Note: the S&P 500 and Dow figures exclude dividends, so the above numbers are understated.
Looking at annual performance, and using performance of low cost mutual funds as the measure so as to allow for dividends and costs. For Gold, you can keep physical gold, but that would incur some or all of storage, security and insurance costs, so I have included both the spot price and the SPDR GLD ETF.
Stocks: 14.1% (Vanguard Total Stock Market Index Fund)
Bonds: 2.9% (Vanguard Total Bond Market Index Fund)
Gold: -4.4% (SPDR GLD ETF)
Gold: -3.8% (spot price)
Inflation: 1.73% (CPI-U to September as October figures not yet released)
So, stocks have it, and gold has provided miserable protection against inflation over the last 5 years.
One reason gold fell in value is because there has been minimal inflation over the past few years, and since one big reason people by gold is as an inflation hedge, there was much less impetus to buy it in recent years.
So it’s possibly worth pointing out that people who bought gold as an inflation hedge were incorrect in that there was not the massive inflation they feared. But it’s incorrect to say that gold failed as “protection against inflation”.
But even the first is not worth a lot. 5 years is a long time in SDMB thread years, but it’s not a long time for economic cause and effect. The final verdict is not yet in.
Please flesh this out more. It seems like you’re saying that because there was very little inflation, people correctly predicted there would be little inflation, and therefore demand was down.
Therefore, it seems to me, when everybody ‘knows’ inflation is coming, gold is a terrible hedge, because you have to buy it at artificially inflated prices.
And gold did worse than the inflation rate, so I think it is ipso facto correct to say that gold failed as a protection against inflation.
Adjusted for inflation the S&P 500 has had an average return of around 7%. It has bad years and good years, but it is very rare to have a 5 year stretch without positive returns, and no 10 year stretch has lost money. Past performance does not guarantee…yada yada yada.
Over 20 or 30 year spans, the index has outperformed gold by multiples for most spans, and always beaten the metal.
If you must buy gold, don’t buy it through any company that advertises. The sale price is typically at least 200% the current market rate. But actually: don’t buy gold.
You can’t use “everybody” and “people” in discussions of market forces. There are always buyers and sellers and divergent views.
When the Fed began pumping the economy, a lot of people thought this would produce massive inflation. Not all people, but a lot of people. Since the percentage of people who thought inflation would occur rose, the price of gold, the inflation hedge, rose.
Had massive inflation actually begun taking place, then gold would have continued rising as more and more people became convinced that it was for real (and the people who got in early would have been protected, at least). But in reality this never came to pass in the time period discussed, and inflation fears eased - meaning that fewer people thought we were on the cusp of massive inflation. Since the percentage of people who thought inflation would occur declined, the price of gold, the inflation hedge, declined.
I agree that five years is a short time in investing terms, although many people advocating buying gold in this thread were fearful of inflation in the near future, so it is reasonable to respond to that. And yes, gold could be viewed as an insurance policy (a hedge) and therefore does not have to show a return to be of value. But over 5 years its performance has been so poor that I would argue that it has been so expensive as not to be worthwhile even as just a hedge.
In fairness, I would also point out that I know that you are not defending a position that buying gold was the best thing to do - you advocated otherwise earlier in this thread (as did I). If you don’t mind sharing, how have your actions worked out? You mentioned a couple of times what you were doing. The first was to max out your mortgage and then you mentioned taking on other debt and building assets. If you borrowed in order to invest in stocks, you will have done very well.
Not so simple. My main stock holdings were energy stocks (mostly pipelines), which were doing well for a while but have been hit in the last year or so. (Though the payouts are still amortizing the mortgage plus paying my RE taxes - I’m not contemplating selling anything at this time.)
OTOH, I also bought real estate, which has done well. And I have a couple of hard money loans, which have been paying very well.
On the whole, can’t complain. Certainly a whole lot better than buying gold.
Indeed, it doubled the comparitive value of gold, when compared to almost anything else, currencies or commodities. (maybe not other metals … similar buy ups occurred …)
I have seen a contract that was written in asia in terms of CAYS of GOLD (with no ISO definition of what a “CAY” is , its bizarre.) The intent was to prevent arguments about fluxuations in currency values when compared to another…
Just saying the use of gold was to protect against inflation in the contract, ironically it caused rather bad inflation…
The Fed has purposefully managed to keep inflation low. But with other consequences. The stock market has artificially run up. Earnings and profitability haven’t been abnormally higher, but valuation multiples have been. You’re seeing inflation creep not into baskets of consumer goods, but into stock prices. One might assume that these artificial bubbles of inflated stock prices will eventually POP and return back to historical normal multiples. The rise in interest rates will be the first gate from which these events will likely occur.
