Gold will always underperform the S&P500

Discussion in 'Economics' started by KINGOFSHORTS, Dec 5, 2009.

  1. If you invested a 10K in the S&P in 1985 it would be worth 60383.4974

    10K in gold at 300Oz would be worth 40,666

    And I am not even including the dividends payed out by SPY which with compounding would make the total return higher than 60383.4974

    Gold has a negative carrying cost as well.

    Buying gold today is like buying gold in FEB of 1980.

    A Goldbug loading up in gold in Feb of 1980 (10K dollars)

    10K in 1980 = 12.5 ounces (800 an ounce)
    10K in 1980 in S&P500 basket = 86.92 units

    10K today at spot 1220 = 15250 dollars
    10K today at S&P 1105.98 = 96,131.78

    and this is not including dividends or reinvestment of dividends.

    Infact the best time to buy into the S&P 500 is when
    the markets sell off and no one is interested in stocks and when gold hits peaks.

    High gold prices low S&P = buy S&P

    There is no economic sense to hold gold with its wide bid/ask prices, low liquidity and opaque price discovery(all based on hype and manipulation)

    S&P500 represents an investment in a basket of fractional ownership in productive assets.

    Longterm bearish gold
    Longterm bullish S&P

    I just want to clarify things because I am getting lots of calls about putting entire IRAs into gold etc.. from folks hearing too much on the TV/Radio about gold.
  2. No more than 10% of net assets should keep one out of trouble if gold plummets.
  3. Mr. Shorts, did you ever buy term life insurance? Or home or auto insurance? Knowing full well that you are probably pissing the policy premium away because you will likely (you hope) never make a cent off of it, much less recoup the principal? What likelihood do you ascribe to ruinous runaway inflation in your country? Physical gold in a bank safety deposit box, which box costs most persons of modest means nothing, is simply an insurance policy. Every nonce and a while I pull mine out (the gold) and sprinkle it all over the wife so she'll feel special, a literal "golden shower." The wife doesn't feel rich unless she has diamonds and furs and a big fancy SUV. And I don't feel rich unless I own gold. In a form that I can finger and rub. If we go back to money being fat cows and fat women, maybe I'll feel different. Already halfway there with the wife. And I disagree with your assertion of low liquidity. Admittedly liquidity is a function of the spread. But I can drive to Edmond OK with barely a stop at the Winstar Casino for a gambling and booze and secondhand smoke fix to my country's finest precious metals dealer and sell all I want to. If you're an American, did you know that was there? I'm guessing that wherever you live, there's an Edmond OK.
  4. How many retail investors are hoping to lose money with their long gold positions like they would with an actual insurance policy?
  5. Only if you know for sure, fed will keep raising its rate to 21% at some point of time in next year. What if fed keeps its rate at current level for next 10 years? how would federal government refinancing its debt without new money come in?
  6. dcvtss


    Putting the gold in a safety deposit box is no insurance.
  7. Comparing asset perfomance with randomly chosen time frames will always give an outcome in line with the point one is trying to make.

    Why not compare gold's performance to C, AIG or Fannie and Freddie?

    There is a time and a place for everything, you just need to know where we are today.

    20 years ago we rented a place at the seaside that we could have bought for the equivalent of 50.000 Euro.

    We didn't but it changed ownership 2 years ago for 750.000 Euro.

    And now convential wisdom is basically flipping real estate is a fools game and bound to make you lose money.


    I always wonder why people think gold bulls aren't aware of these swings.

    You think John Paulson is a conspiracy nut never looking to sell his gold because the world as we know it will end and he will try to sell his gold for canned food in 2012?
  8. Exactly. why don't we look at the period 1929 to today for simplicity's sake? (the last 80 years)

    The Dow went from 385 to 10400 (a 27 fold appreciation)
    Gold went from 20 to 1160 (a 58 fold return)

    I guess the only conclusion we can possibly make is that gold always outperforms stocks in the long run. I am not even figuring in the effect of interest earned on lending it out. Of course there are some periods when stocks do better, like in KOS's examples. But the numbers do not lie.

    Actually the fact that stocks have underperformed over such a long time period really is a troubling phenomenon. It suggests there has been no real improvement in capital stocks in the last 80 years.
  9. If gold drops to $600 Monday it still beats stocks over the same 80 year period, PERIOD
  10. Paulson is a trader, most gold bulls are not. A trader knows when to get out of a position should it start going against him before he enters it. How many of the naive retail gold bulls can claim that of themselves?

    The gold bulls love taking Paulson's name into their mouth because it seemingly gives their cause so much more professional credibility, yet they have so little in common with him.
    #10     Dec 5, 2009