Gold Outperformed The S&P 500, 1995-2012

The S&P 500 index outperformed gold in 2012.  The Dow also outperformed gold, but not by as much.

A pro-State troll might say “This proves that all gold investors are idiots!”  In a “bad” year for gold, gold did slightly worse than the stock market.  If you look at recent history, gold has still crushed the stock market over the last 10-15 years.

Inflation was certainly more

To be consistent, I’m using January 1, 2013 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.

I found a slight arithmetic error in the way I was calculating “diff”, “cum diff” and “ann cum diff”.  It doesn’t effect the results much, but that explains slight discrepancies compared to last year’s post.  Now I’m correctly calculating diff so that “What return, when added to gold, matches the return in the S&P 500.”

The corrected formula for 2000-2013 is ((gold_2000/gold_2013) * (sp_2013/sp2000))^1/13 – 1.

YearS&P 500GoldGold/VFINXDiffCum DifAnn Cum Diff
2013131.37$1693.75$12.89-7.86%-7.86%-7.86%
2012114.2$1598.00$13.9912.87%4.00%1.98%
2011112$1388.50$12.407.75%12.05%3.87%
201097.47$1121.50$11.511.36%13.58%3.24%
200977.04$874.50$11.3563.99%86.26%13.25%
2008122.33$846.75$6.9225.58%133.92%15.22%
2007116.07$639.75$5.514.38%144.16%13.60%
2006100.37$530.00$5.2813.74%177.72%13.62%
200595.8$444.74$4.64-1.98%172.23%11.77%
200486.51$409.72$4.74-12.26%138.86%9.10%
200367.32$363.38$5.4050.75%260.07%12.35%
200286.5$309.73$3.5829.90%367.74%13.72%
200198.33$271.04$2.766.78%399.44%13.17%
2000108.12$279.11$2.58-20.58%296.67%10.34%
199989.3$290.25$3.25-21.83%210.07%7.84%
199869.43$288.70$4.16-24.49%134.14%5.46%
199752.13$287.05$5.51-36.68%48.25%2.34%
199642.43$369.00$8.70-30.63%2.84%0.16%
199530.87$387.00$12.54-0.20%2.64%0.14%
199430.51$383.25$12.56-10.35%-7.98%-0.41%
199327.96$391.75$14.018.72%0.05%0.00%
199225.84$333.00$12.89-27.56%-27.53%-1.45%
199119.85$353.15$17.79-5.38%-31.43%-1.63%
199020.54$386.20$18.80

If you go back to 2001, a buy-and-hold gold investment outperformed a buy-and-hold S&P 500 investment by 13% 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.  Even if you are near retirement, any money you don’t need in the next 5 years should be in the investment with the highest expected return.  As the above charts show, gold has a better return than the stock market with lower volatility.

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.

3 Responses to Gold Outperformed The S&P 500, 1995-2012

  1. The flat spot anomaly in 2008 is very unusual. This was right when it was announced that the trillions is debt would be created through inflation and given to bankers. The normal economic thing would be for the price to rise. But instead it suddenly stopped its previous growth. Some have said there were strange trades and transfers and large boats filled with gold moving across the seas. Some say this is when the last reserves at Fort Knox were dumped on the market to stabilize the price and prevent panic. What do you think caused the flattening in 2008 in gold price right at the major disclosure that massive inflation would occur?

    • Almost all futures prices crashed during 2008. People had to sell to make margin calls in other areas.

      Suppose a hedge fund held a lot of gold, a lot of stocks, and leverage. The stock market crashed, leading to margin calls on the stock. They had to sell their gold futures to make the margin call on the stock.

      There also is a “mean reversion” argument. Prior to 2008, gold had several good years in a row, so a “bad” year was needed to even things out. Notice that even in a “bad” year for gold, the performance is pretty good. If you hold gold for at least two years, your risk of getting a FRN-denominated negative return is practically zero.

      Here’s another argument in favor of market manipulation. In 2008, when the price of gold crashed, the “futures” price of gold crashed *BUT* many gold dealers had no inventory. If you wanted to buy actual coins, you had to wait or pay larger premiums to spot.

      As Jon Corzine taught us, the futures market has default risk. The futures market and cash/bullion market are two separate things.

      Here’s another interesting story from 2008. A lot of farmers hedge their crops with short futures. In summer 2008, futures prices skyrocketed. This led to margin calls for farmers, who were then forced to close their futures position at the top of the market. By fall 2008, when the crop was delivered, prices tanked again. The farmers wound up selling low and buying high. Via market manipulation, banksters robbed the farmers. DON’T USE THE FUTURES MARKET!

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