As of 02/21/2024
  Indus: 38,612 +48.44 +0.1%  
  Trans: 15,582 +118.68 +0.8%  
  Utils: 854 +11.76 +1.4%  
  Nasdaq: 15,581 -49.91 -0.3%  
  S&P 500: 4,982 +6.29 +0.1%  
YTD
 +2.4%  
-2.0%  
-3.1%  
 +3.8%  
 +4.4%  
  Targets    Overview: 02/13/2024  
  Down arrow37,700 or 39,000 by 03/15/2024
  Up arrow16,400 or 15,400 by 03/01/2024
  Up arrow870 or 800 by 03/01/2024
  Down arrow15,000 or 16,400 by 03/15/2024
  Down arrow4,850 or 5,100 by 03/15/2024
As of 02/21/2024
  Indus: 38,612 +48.44 +0.1%  
  Trans: 15,582 +118.68 +0.8%  
  Utils: 854 +11.76 +1.4%  
  Nasdaq: 15,581 -49.91 -0.3%  
  S&P 500: 4,982 +6.29 +0.1%  
YTD
 +2.4%  
-2.0%  
-3.1%  
 +3.8%  
 +4.4%  
  Targets    Overview: 02/13/2024  
  Down arrow37,700 or 39,000 by 03/15/2024
  Up arrow16,400 or 15,400 by 03/01/2024
  Up arrow870 or 800 by 03/01/2024
  Down arrow15,000 or 16,400 by 03/15/2024
  Down arrow4,850 or 5,100 by 03/15/2024

Bulkowski on Gold: Is Gold a Good Investment?

Initial release on 5/19/2021.

Is gold a good hedge against inflation or stocks? How does the performance of gold over time compare to stocks, inflation, and real estate (houses)? Let's take a look.

Summary
Is Gold a Good Hedge?
Performance versus Inflation
Performance of Gold versus Stocks
See Also

Gold: Summary

A hedge is an asset that drops when another asset rises, or the reverse (rises when another drops). Some maintain that when stocks drop, gold rises. If you want to beat inflation, buy gold. Is any of that true?

Question: Does gold outperform stocks and housing? Answer: Gold beats housing but not stocks. See Table 1.

Question: Does gold outperform inflation? Answer: Only half the time. See Table 2.

Question: Is gold a good hedge against stocks? Answer: No. See Table 3.

Gold: Is Gold a Good Hedge?

Table 1: Annual Performance from 1972 to 2022
Description Average  Median    Sum   
Inflation3.9%3.1%195.7%
Housing with costs0.8%0.8%40.9%
Housing without costs6.1%6.2%311.5%
Gold10.4%5.0%529.9%
S&P 500 index12.0%15.8%611.1%
Nasdaq composite12.4%15.4%634.6%

I downloaded publicly available data from various sources to check the performance of gold bullion, houses, and the stock market from 1972 to 2022.

Table 1 shows how the various components performed over the 50 years. For each year, I computed the return from the prior year and calculated the average, median (the midrange value in a sorted list of numbers) and total increase over time (the sum of the return each year).

For example, inflation averaged 3.9% over the 50 years, the median value was 3.1%, and the sum of each year, was 195.7%. That row serve as the benchmark. As investors and traders, we want to select investments that will beat inflation so we can grow our money.

In last place is housing after the cost of ownership is factored in. What are those costs? Homeowners association dues, mortgage interest, property taxes, maintenance, and so on. A reference cited later found that 5% of a home's annual value is a good number for the cost of homeownership. I adjusted the market value of a home each year downward by 5% to factor in those costs.

In case you don't like the 5% cost-of-ownership number, I show the return without costs in the next line. This is unrealistic, but if you didn't have to pay for termite damage or foundation repair or a new roof or plumbing repairs or anything else that crops up from time to time when owning a home, you'd exceed the cost of inflation against the average, median, and sum.

The next line is the price appreciation of gold over 50 years. The return from gold exceeds inflation by about double. That's good.

The next to last line in Table 1 shows the total return (price plus dividends) of the Standard and Poor's 500 index. Finally, the last line shows the Nasdaq composite. This is not total return but the price return over 50 years. If we were to add in dividends, we would likely beat the S&P 500s index. The Nasdaq returns about three times the rate of inflation, and that's very good.

The GLD prospectus (SPDR Gold Trust exchange traded fund) says that during the 2008 financial crises, individuals sold gold and drove down the price. I looked at the data and found that during what's called the Great Recession, from December 2007 to June 2009, the price of gold climbed 17%. However from the start of the crises to gold's monthly low in November 2008, gold dropped 6%.

Top of page

Gold: Performance versus Inflation

Table 2: Annual Performance versus Inflation
DescriptionWins
Housing with costs27%
Gold49%
Nasdaq composite71%
S&P 500 index73%

Table 2 shows how the various elements compared to inflation on a year by year basis. In other words, I conducted 50 annual contests and compared the inflation for that year with the associated investment (gold, house, S&P, and Nasdaq).

The table shows that when costs are included with housing, the value of a house only beats inflation 27% of the time.

The winner of this table, is the total return of the S&P 500 index, which beats the annual rate of inflation 73% of the time. My guess is that if dividends are included in the Nasdaq composite, it might be the winner.

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Gold: Performance of Gold versus Stocks

Table 3: Gold versus Stocks
Gold (below), S&P (right)UpDown
Up48%11%
Down30%11%

Is gold really a good hedge against stock movement? By that, I mean if stocks rise does gold fall? If stocks fall, does gold rise? Table 3 shows what I found using data from 1969 (not 72, so it's 3 years longer than the other tables).

If you add the cells together, we find that gold tracks stocks either both up or both down 59% of the time. They go against the trend 41% of the time.

In other words, gold moves in concert with the S&P 500 index, not against it.

-- Thomas Bulkowski

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See Also

Here are the data sources I used. I don't link to them because they can break over time, but if they still exist, you can visit the site and poke around.

 

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