Stocks catch up to gold

This is a chart of the price of gold and the S&P 500 since 1994.   Until 2008, the price of the S&P was consistently higher than gold.  In 2008-09, stocks crashed below the price of gold, and the two prices rose together from there until 2010-11 when they decoupled as gold outpaced stocks.  Since late 2011, gold has declined and stocks have continued rising.  Last week, stocks caught up to gold in the high 1500s, though at Friday's close, gold had regained a slight lead.

The point here is that the two asset classes have similar long-term returns, though wildly different short-term returns.  That makes them excellent diversifiers for each other.  Gold's price return over the period is 302%, or 7.6% annualized.  The S&P's price return is 247%, or 6.8% annualized.  Add in the S&P's dividend yield which has averaged around 2%, and stocks have outperformed gold.  But gold has equity-like returns with significant risk diversification.  And the real winner is anyone who dollar-cost averaged into both asset classes, buying more gold when gold was low and stocks were high and more stocks when stocks were low and gold was high.

Gold and stocks are both essential components of any rational long-term portfolio strategy.

Gold: a multigenerational store of value

Welcome to Camp Marston, a historic summer camp near Julian, California, from the early days of the San Diego YMCA.



"Photo from 1928, when boys would meet at the Downtown YMCA at 8th & C Avenue, then climb aboard this old truck for the long ride to Julian.  The fee for a camp session that year was $11.50 plus $1.50 for transportation." - photo caption.

This summer, a child can attend for $685.

That $11.50 in 1928 was just over half an ounce of gold, which was then around $20.66 per ounce.  The price today is just under a half an ounce of gold at $1650 per ounce.

Fiat currencies will come and go, but gold remains a remarkable long-term store of value.  And with central banks only recently ramping up the game of Global Competitive Devaluation, the next 85 years could see an even bigger divergence between gold and fiat than the last 85 years.

In the post-1971 pure fiat currency regime, gold has generated equity-like average returns with the diversifying benefit of a low correlation to equities.  It can be expected to outperform equities in a number of economic and policy scenarios for which the probabilities are decidedly non-zero.  I cannot fathom a valid excuse for any investor having a 0% allocation to gold.