I truly hate this comparison. Commentators on both sides use it for their own personal bias, but it’s simply not an apples-to-apples comparison.
Gold is money. It’s a currency, and if the CNBC pundits want to compare gold to something, compare it to the U.S. dollar or any of the other 3,000-plus fiat currencies that are no longer in existence.
Stocks are active businesses; they are investments. So, of course, the returns should be better than just holding money. Although the comparison is never truly fair to gold, since the major indexes are constantly being updated annually, removing bad companies and adding in robust ones.
Gold has proven itself to be the king of money and an honest store of value. Its job isn’t to compound or even grow in value, its role is to preserve your wealth.
In his book, “Stocks for the Long Run,” Jeremy Siegel showed a chart where $1 in gold bought in 1802 was worth $4.52 today. Stocks, however, had climbed from $1 to $704,997.
That’s phenomenal, and I hope the same happens for the next 200 years. I should point out that at least for the last 40 years, the U.S. Treasury Department has taken a very direct role into manipulating the price of gold down.
For 4 decades in the U.S. (1934 to 1974), gold was also illegal to own! And it’s been pretty clear that the same forces that keep gold down do everything they can to keep the Dow trading higher. So Mr. Siegel’s data may not be as solid as he thinks.
In the end, it doesn’t matter: gold is insurance. It’s money; it is a precious metal. Let’s keep this into perspective when taking physical ownership for peace of mind vs. owning publicly-traded businesses.