Gold outperformed the S&P 500 again in 2011. However, gold did slightly underperform the Dow.
This article had a pretty serious error. It said “HAHAHA!! Gold investors are idiots! Long-term Treasuries crushed Gold in 2011!” You might say “WTF? Treasuries only yield a couple percent?” The point is that long-term interest rates sank in 2011, due to excessive money-printing, quantitative easing, a 0% Fed Funds Rate, and the expectation that the Fed Funds Rate will low for awhile. When yield decreases, bond prices increase. With a 30 year Treasury, a 1% decrease in yield corresponds to a bond price increase of approximately 18%. However, if you’re invested in Treasuries, you’re reinvesting at a now-lower rate. The only reason that long-term Treasury prices soared in 2011 is because long-term interest rates tanked. That gain was created by the State and the Federal Reserve. Rising Treasury bond prices subsidize bank profits, because banks have a leveraged investment in Treasury bonds.
GLD is slightly behind the S&P so far in 2012, but to be consistent, I’m going to use January 1, 2012 as my cutoff date.
I use VFINX as my source for the S&P 500. I use “adjusted close”, so I include reinvested dividends. According to Yahoo Finance, VFINX adjusted close was 113.58 on Dec 31, 2010 and 115.80 on Dec 31, 2011. That’s a gain of less than 2%.
In last year’s version of this post, you had to go back to 1997 to find a time when the S&P would have been a better investment than gold.
Because gold outperformed the S&P again in 2011, you now have to go back to 1995 to find a time when a S&P buy-and-hold-to-the-present investment would have been better than gold. Anytime after 1995, a buy-and-hold gold investment would have crushed a buy-and-hold S&P 500 investment.
I use usagold as my source for the price of gold.
Here are my results. “Cum diff” is the cumulative difference, “Ann diff” is the difference converted to an annualized gain.
|Year||S&P 500||Gold||Gold/VFINX||Cum Dif||Ann Cum Diff|
If you go back to 1999, a buy-and-hold gold investment outperformed a buy-and-hold S&P 500 investment by 12% PER YEAR!
Here is the same information in chart form:
When viewing financial data over many years, you should use a log scale. Here’s the same information in log scale. On the log scale, it’s easier to see how gold is crushing the stock market recently.
The above two charts show that gold has crushed the S&P 500 over the past 15 years.
If you believe “Gold is money!”, then the above charts show that the stock market severely underperforms true inflation. Over a 10-15 year period, the price of gold should track true inflation pretty well. There are short term-fluctations, but this is a dramatic difference over a 15 year period.
A pro-State troll says “You should be diversified!” That is false. If you aren’t near retirement, your long-term savings should be in whatever provides the highest expected return. If you invest in stocks or bonds, you will get robbed by inflation. The number on your account balance will increase, but it won’t keep pace with true inflation.
A State financial planner will show a chart with exponential growth, showing your savings growing over time. That is a lie. In the stock market, your real return is negative 5% to negative 10% per year. Instead of exponential growth, it’s asymptotic growth. With a return of negative 10%, your maximum inflation-adjusted savings is 10x whatever you save in a year.
Unfortunately, for non-insiders, the stock market is a losing proposition. A stock market investment does not outperform true inflation. Instead of the stock market, you should buy gold and silver and take physical delivery.
This post shows that the stock market has not outperformed true inflation over the past 15 years.