Gold Is The Decade’s Best

Sunday, December 27th, 2009

By Frank Holmes
CEO and Chief Investment Officer

Happy holidays wishes to all, with a special season’s greetings to the permanent gold skeptics.

The decade that ends next Thursday is on track to be the worst in recorded history for the U.S. stock market—worse than all of the many boom-and-bust cycles of the 19th century, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s.

The S&P 500 opened the decade at 1,469.25 on January 3, 2000. When the market closed on Christmas Eve, the S&P 500 stood at 1,125.46—with four trading days left in the decade, the index’s annual performance over that span is negative 2.6 percent. The Dow Jones Industrials has lost about 1 percent per year over the same period, and the Nasdaq Composite is down a whopping 5.9 percent annually. When adjusted for inflation, the 10-year returns for these indices are even lower.

Meanwhile, what about gold?

The chart above from Bloomberg tells the story—a $100 investment in gold when the market opened on January 3, 2000, was worth about $380 as of this week (data through December 21)—that’s a total return of 280 percent and an annualized return of 14.3 percent. Gold stocks (as measured by the XAU Index) have also had a good decade, climbing 9.4 percent annually.

Commodities (as measured by the S&P GSCI Enhanced Total Return Index) posted average gains of 13.6 percent per year over the period, driven mostly by rapid economic growth in Asia and elsewhere in the developing world.

There are many commentators out there who see no value in gold and who denounce it as an investment at every opportunity. They are certainly entitled to their opinions, but it’s hard to argue with the numbers over the past 10 years—investors on average would have been better off with a gold allocation than having no exposure.

We consider gold a legitimate asset class, and for that reason, we consistently suggest that investors consider a maximum 10 percent allocation to gold-related assets—half in bullion or bullion ETFs and the other half in gold equities—and that they rebalance each year to capture the swings.

What the next decade will bring for gold? Who knows. But we do know one thing—those who held gold for the past 10 years will have a happier New Year than those who listened to the perma-skeptics.

Tags: Annualized Return, asset class, Boom And Bust, Bust Cycles, Chief Investment Officer, Christmas Eve, Commentators, Commodities, Developing World, Dow Jones, Dow Jones Industrials, ETF, Frank Holmes, Gold, gold stocks, Great Depression, Gsci, Happy Holidays, Nasdaq Composite, Rapid Economic Growth, Skeptics, U S Stock Market, Xau Index
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A Golden Decade for the “Barbarous Relic”

Sunday, December 27th, 2009

While gold bullion is correcting from all-time record levels in early December, US Global Investors shows the yellow metal is on track to close the decade that ends next Thursday as the top performer among the principal asset classes, thanks to an annualized return of 14.3%. Commodities (as measured by the S&P GSCI Enhanced Total Return Index) gained 13.6% per year over the period that started on January 3, 2000.

According to US Global Investors, the decade looks set to be the worst in recorded history for the US stock market - “worse than all of the many boom-and-bust cycles of the 19th century, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s. The S&P 500 Index opened the decade at 1,469.25 beginning of 2000. When the market closed on Christmas Eve, the S&P 500 stood at 1,125.46 - with four trading days left in the decade, the index’s annual performance over that span is negative at 2.6%. The Dow Jones Industrial Index has lost about 1% per year over the same period, and the Nasdaq Composite Index is down a whopping 5.9% annually. When adjusted for inflation, the ten-year returns for these indices are even lower.” However, gold stocks (as measured by the XAU Index) have had an excellent decade, climbing 9.4% annually.

A picture paints a thousand words …

Meanwhile, in the chart below, Egon von Greyerz of Matternhorn shows (via US Global Investors) just how small the precious metals market is in relation to large companies like Microsoft and Exxon. Global privately held bullion is only about three times the size of Microsoft’s value, a miniscule figure for global ownership. In total, privately held physical investment in gold makes up only 0.7% of total investable financial assets. Mr. Greyerz argues that currently the average fund manager and investor has no exposure to gold on a relative basis, but says that an increase in the allocation to gold would be supportive of the gold price in the future.

Source: US Global Investors - Weekly Investor Alert, December 24, 2009.

Time will tell what the next decade will bring for gold, but my money remains on the “barbarous relic” scaling fresh peaks in due course.

Tags: Barbarous Relic, Boom And Bust, Bust Cycles, Christmas Eve, Commodities, Dow Jones Industrial, Dow Jones Industrial Index, Financial Assets, Gold, Gold Bullion, Gold Price, gold stocks, Golden Decade, Gsci, Matternhorn, Nasdaq Composite Index, Precious Metals Market, Principal Asset, Relative Basis, Us Global Investors, Us Stock Market, Xau Index
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Commodities Performance in 2008

Sunday, December 28th, 2008

Commodity price performance has been a wild ride in 2008. The record of price movement is outlined in the table and chart below. For each commodity, the table details year-to-date (YTD) %-age change, drop from 52-week high, and start of year to the 52-week high.

Oil has had the roughest ride falling 62% YTD, 75% from its 52-week high, and preceded by a rise of 53% to its 52-week high. This was followed by Copper, Platinum, and Natural Gas, which had a meteoric rise to its 52-week high of 83%.

Most of the commodities, save Gold, have behaved in kind, thanks to the long-only commodity indices like GSCI which enabled investors of all kinds to invest naked in long-only baskets of commodities. They all went up together, and they all came down together. Platinum and Silver, the other two precious metals dropped along with other commodities, while Gold resumed its dual status as favoured currency and store of value during periods of turmoil.

Commodities are indeed more volatile than stocks. When, and if, we see the return of expansionary and/or inflationary (or worse, hyper-inflationary) conditions, however, these will be a key asset class to allocate to. With all of the printing presses at the Fed whirring right now, some would say its inevitable.

Tags: Array, asset class, Baskets, Commodities, Commodity Indices, Commodity Price, Copper, Currency, Dual Status, Gsci, Investors, Kind Thanks, Meteoric Rise, Natural Gas, Periods, Platinum, precious metals, Price Performance, Printing Presses, Table Details, Turmoil, Wild Ride
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