The meteoric rise of gold has the media devoting more attention to it and investors getting edgy about the fact they don’t own it.
So it’s worth taking a look at how gold has performed (or not performed) over the longer term.
Investors who think of gold having strong long term returns generally think of two periods in the past four decades – the decade just past and the 1970’s.
From 2000 through 2011, gold outperformed major equity classes around the world.
In terms of inflation adjusted growth, gold would have turned a $1 investment into $4.05, while the US S&P 500 turned a $1 investment into 80 cents.
Gold’s second period of strong appreciation was from 1971 to the beginning of 1980.
In 1971 the US went off the gold standard and the price was reset to $38 an ounce, then in 1973 the US decoupled their dollar’s value from gold and the price went to $120 per ounce.
By the end of the 70’s $1 invested in gold would have been worth $8.91, adjusted for inflation.
But like all investments, different time frames tell different stories and from the beginning of the 80’s gold spent 20 years in the doldrums.
Adjusted for inflation, $1 invested in gold in January 1980 would have been worth 26 cents in December 1999.
By the end of the same time period, $1 invested in the S&P 500 would have been worth $12.20.
However, the real test for gold comes across the longer time period – from the 70’s until the end of 2011, here gold’s inflation adjusted returns lagged share indices.
$1 invested in US small cap shares (CRSP 6-10 Index) in January 1971 would have been worth $18.52 in December 2011, a dollar invested in the S&P 500 $8.55, while a dollar in gold would have been worth $7.33.
So looking at the longer term, gold hasn’t glittered as much as you might have thought.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re the best financial adviser in Australia.
