Kbg wrote:
Can someone help me out here? Why do people keep referencing the decade after the legalization of gold again as the ringer that won't be repeated again and therefore gold is not a useful asset? I'm cherry picking here but roughly from March 05 to Oct 11 the gold to stock returns were literally a 100x better -- 453% to 4.4% (divs probably kick the latter up a bit). LT bonds chipped in but seems to me gold pretty much carried the PP during the time frame.
It's just an argument to use to throw out the data suggesting that gold actually works as a diversifier. It would be the same as me saying that the great stock returns from the past 40 years are irrelevant because the 1980s and 1990s skewed the results. Now of course the 1980s and 1990s do skew stock return results upwards a lot, but that doesn't mean you shouldn't own stocks. Likewise, the 1970s and 2000s skewed gold a lot as well, but again that was just gold's time in the sun.
I actually believe the LT real return of gold is zero...but I'm pretty sure I will expire before infinity does and it seems to make sense to ride the surf until then. It also seems entirely possible that GLD could go back to the 40s over the next 3.5 years.
Gold is an insurance asset. It's where you park you profits from the other assets to guard against inevitable currency problems. And I say inevitable because they always are. Heck, the U.S. stock market data most people rely on for "proof" of stock superiority is largely only around 80 years old. Prior to that the data is not as cut and dry and there is huge survivorship biases. Plus, if you look at other countries the stock market was never a sure thing at all. There have been wars, government failures, etc. that have made many other markets net losers long-term. Good stock returns aren't promised either.
Stock markets don't always go up and fiat currencies don't last very long historically speaking. If you look at the currencies in issue today most of them are probably less than 50 years old, and almost none are more than 100 years old. That's a lot of turnover. So better to hedge this a bit and own some gold which is a universally accepted currency at all times and in virtually all cultures.