This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Monday, January 18, 2010

Gold Outperformed the S&P 500, 1997-2009

"Gold Outperformed the S&P 500" is one of the regular posts that I update every year. I'll update my "Real GDP is Decreasing" post when preliminary 2009 GDP data is released. When you consider that the FRN-denominated price of gold went up 28% in 2009 (or equivalently, the value of the dollar went down 28%), while nominal GDP was flat, the US economy continued to crash in 2009.

In 2009, the FRN-denominated price of gold went up 28.2% while the S&P 500 went up 25.7%, including reinvested dividends. I use VFINX on Yahoo Finance as my source for the S&P 500, the "Adjusted Close" column which includes reinvested dividends. I use as my source for the price of gold.

YearS&P 500GoldGold/S&PDiffCum DifAnn Cum Diff
2010$102.67 $1121.5010.922.53%2.53%2.53%
2009$81.67 $874.50 10.7140.29%53.27%23.80%
2008$129.67 $846.75 6.5326.97%91.86%24.26%
2007$123.04 $639.75 5.25.07%115.11%21.11%
2006$106.40 $530.00 4.9814.39%151.07%20.21%
2005$101.55 $444.74 4.38-2.19%161.76%17.40%
2004$91.70 $409.72 4.47-15.75%164.75%14.92%
2003$71.36 $363.38 5.0939.49%250.11%16.96%
2002$91.69 $309.73 3.3826.31%315.27%17.14%
2001$104.23 $271.04 2.66.17%312.23%15.22%
2000$114.61 $279.11 2.44-24.91%277.93%12.85%
1999$94.66 $290.25 3.07-28.08%248.97%10.98%
1998$73.60 $288.70 3.92-32.61%204.90%8.95%
1997$55.26 $287.05 5.19-45.06%75.67%4.11%
1996$44.98 $369.00 8.2-42.12%-23.99%-1.81%
1995$32.72 $387.00 11.83-0.20%-24.84%-1.77%
1994$32.34 $383.25 11.85-11.28%-60.11%-5.26%
1993$29.64 $391.75 13.229.43%-38.06%-2.63%

"Ann Cum Diff" is the relative performance difference between gold and the S&P 500, converted to an annualized rate. (I already have Excel spreadsheets for this. I just update them with this year's data. That makes this post easier to write than it seems.)

This was a relatively good year for the stock market, trailing gold by only a few percent. If you go back to 2000, a gold investment would have outperformed the S&P 500 by more than 10% *PER YEAR*. That isn't 10% total. That's 10% per year, compounded.

You have to go all the way back to 1996 to find a time when a buy-and-hold S&P 500 investment would have outperformed a buy-and-hold gold investment.

Here's a chart that contains the same data as the above table:

Here is the same chart on a logscale. When viewing financial data, a log scale is correct, because you care about the percentage gain and not the absolute gain. Viewed on the logscale, it's still a pretty big discrepancy.

The comedians on the Communism Channel denigrate gold investors at every opportunity. The above charts show that gold has trounced the stock market over the past 10 years, by a statistically significant difference.

"Gold outperforms the stock market!" is logically equivalent to "The stock market does not outperform true inflation!" If you believe "Gold is money!", then this is a matter of definition.

I was very disappointed when I discovered that the stock market is one big scam. I used to follow it closely and track my investments. Now, I realize that I should just buy gold and silver. I haven't yet cashed in my State paper investments for physical metal, but it's on my list of things to do.

The problem is not "a free market discredited the gold standard". The problem is that State violence and State regulations caused the gold standard to fail. The best example of this is Roosevelt's gold confiscation order in 1933. State raids against the Liberty Dollar and E-Gold are a recent example of State violence used to crack down on people who seek monetary freedom.

Compared to the stock market, gold has a higher expected return and a lower volatility. This makes it one of the safest investments. The only problems are:
  1. State regulations make it hard to buy gold and silver. A State-licensed dealer is required to report transactions to the State/IRS.
  2. State regulations make it hard to use gold and silver as money. If you want to use gold and silver as money, you should work off-the-books.
  3. State regulations make it impractical/illegal to operate a warehouse receipt bank.
If I could overcome the above obstacles, I'd convert 100% of my savings to physical metal. "Start a gold/silver/FRN barter network!" and "Start a decentralized agorist banking system!" are two of my favorite agorist business idea.


dionysusal said...

I understand how inflation affects the price of gold when it's denominated in FRNs, but for the uninitiated, could you amplify on what other factors affect it, like supply and demand and speculation, and if those pale in comparison to inflation? Personally, I would not invest in gold since I'm pretty sure the bad guys own most of it and they'll always figure out some way to scam people.

FSK said...

Short answer: the other factors are negligible compared to inflation. In the short-term, there will be fluctuations. In the long-term, gold should track true inflation.

How do you know the bad guys haven't brainwashed you into believing that gold is a lousy investment? If you buy gold and take physical delivery, then the only way to rob you is to seize your metal. Gold is excellent at preserving purchasing power over time, for all goods where there's an apples-to-apples comparison.

dionysusal said...

>How do you know the bad guys haven't brainwashed you...

That's a fair question. Like you, most of my adult life has been a gradual awakening and unlearning of all the garbage I've been spoon-fed as a child, mostly about being a happy herd member and kowtowing to the Establishment. Your analogies of "The Matrix" and "They Live" are very apt-- probably why I've always loved those movies. Luckily I was able to get myself off their "designing table" in time. And like you, I'm still probably cracking my brainwashing, so it's possible I believe things, like about gold for example, that are wrong. I admit I'm not too strong on the financial and economic stuff, though I'm getting better. It's scandalous that people aren't given a solid foundation in any of this stuff in school. I'm sure it's no accident.

This Blog Has Moved!

My blog has moved. Check out my new blog at