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Thursday, July 2, 2009

Gold Outperformed the S&P 500 in the First Half of 2009

For those of you keeping score at home, gold continued to trounce the S&P 500 in the first half of 2009.

I'm using Vanguard's S&P 500 index fund, with reinvested dividends, as my source (via Yahoo Finance). At the end of December, the closing price was $82.51. At the end of June, the closing price was $84.72, for a gain of 2.67%.

I use this page as my source for the price of gold. At the end of December, gold was at $869.75/ounce. At the end of June, gold was at $938.25/ounce. The gain was 7.88%. This corresponds to an annual inflation rate of 16%.

Gold outperformed the S&P 500 by 5.2% in the first half of 2009. This is an annualized rate of 10.5%, which is very close to the average difference of 12.2% from 1998-2008.

The return on the stock market is less than true inflation. If you believe "Gold is money!", then the price of gold is a fair measure of inflation. When the stock market underperforms gold, that really means that the stock market underperforms true inflation.

On the Communism Channel, the comedians say "Hooray! The stock market is rising!" A lot of new money has been printed to bail out the banksters and other insiders. New money continues to be created. When you print new money, prices go up! Professional comedians can't tell the difference between gains due to economic growth, and gains that are merely inadequate compensation for true inflation. The CPI is a biased measure of inflation. It is far less than the true inflation rate.

On the Communism Channel, the comedians also frequently say "Gold investors are idiots!" The fact that gold has trounced the stock market over the past 10 years, and continues to do so, is an indication of the desirability of a gold investment.

The advantage of gold is that it can't be counterfeited like paper investments. If you invest in a money market account or Treasury bonds or other bonds, your savings are stolen via inflation. If you invest in shares of stock, you can't prevent the CEO from dilution your ownership by printing new shares and giving them to himself and his friends. As a small shareholder, you can't prevent the CEO from squandering the corporation's resources. There are "fiduciary responsibility" laws, but those only are invoked for the most egregious theft.

If you own gold and take physical delivery, then parasites with a printing press can't steal your savings. For this reason, the State propaganda engine always promotes other investments over gold. For this reason, State enforcers make it very hard for people to invest in gold. Gold dealers are heavily regulated, increasing transaction costs. Operating a gold warehouse receipt bank is illegal or regulated to the extent that it's unprofitable. This gives small gold investors no safe place to store their metal, except keeping it concealed in your home.

It is possible that in a 6-24 month period, the stock market may outperform gold. The price of gold is manipulated, which means that there may be short-term periods where gold performs poorly compared to other assets. Over an extended period of time, the price of gold should track true inflation closely. There should be another inflationary bubble forming soon, and it may be in the stock market. However, the long-term trend is that gold should continue to outperform the stock market by a wide margin. As the collapse of the State gets closer, the disparity should increase.

Gold outperforms the stock market because with a gold investment, you get full allodial title. A stock pays a dividend and earns profits due to the State-backed monopoly/oligopoly. A pro-State troll says "Don't buy gold! You don't get a dividend and you have to pay storage costs." However, a stock also has friction costs. The insiders who control the corporation line their pockets at the expense of shareholders. This is an inevitable consequence of the Principal-Agent problem, when someone controls resources that they don't technically own.

State enforcers make it hard for people to invest in gold, because the bad guys don't want people to be able to protect their savings from theft via inflation. The State propaganda engine criticizes gold investors at every opportunity. This is strong evidence of the value of a gold investment.


fritz said...

Does anyone know how we got on federal reserve slave points. I can't find it anywhere. There is no amendment to the constitution of section 10 " no state shall make anything but gold and silver coin a tender in payment of debt"

We are getting f#ck#d over and the government doesn"t even have a foundation upon the constitution to make it fake money!!!

Anonymous said...

other interesting things to consider...
Hitler went taking peoples gold, also the US at one point made it illegal to carry gold... so you need to be able to hide it

Paper gold (gold futures and gold options) is an interesting phenomenon. From what I understand, more paper to represent this gold doesn't distort the value. However the value can get distorted by manipulation, by bubbles in the paper asset, etc. What happens is there's maybe futures that can allow for delivery of the gold, the problem is gold futures are so heavily traded that there isn't enough physical gold in existence. What's worse, there's vehicles like GLD and DGP, that you can own, but owning them doesn't entitle you to the shares. However, if you have money in an IRA for tax deferred benefit, I would think owning GLD would be better than money market account, or speculating on gold mining stocks which can run out of inventory, miss earnings, etc.
Maybe not though.
I have heard about the possibility to invest in gold directly with IRA but I'm not sure.

Fivemileshigh said...

Here's a better page for getting the price of physical gold:

it tracks eBay sales of actual coins.

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