Click to enlarge



Fascinating look at the very long term via Global Financial Data, starting from the same point.

The best performers are the Dow, SPX Gold and then Silver. I have no idea what this means, but its interesting and pretty and hopefully thought provoking.


Ralph Dillon
Global Financial Data, April 15, 2013

Category: Gold & Precious Metals, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “Gold, Silver vs DJIA, S&P 1885-2013”

  1. gman says:

    It does not look like reinvested dividends are included? Storage cost and or roll cost for the metals?

  2. pseudboy says:

    A broad conclusion is that over long term stocks market returns have outpaced inflation, which should be one of the key reasons for investing in the stock market.

  3. carchamp1 says:

    Over time, always and forever, equities will outpace commodities. Equities will also outpace consumer and producer inflation. It has to be this way. Why? Human ingenuity will always find more productive ways to stretch our available resources. The capacity for humans to make our own lives better is timeless, relentless, and powerful.

  4. ElSid says:

    Uuuuh…it means that it was great to have cheap and cheapening commodities back 100 years ago when we actually manufactured stuff, but now that commodities have little chance of getting cheaper (per J. Grantham) they are probably going to get more expensive?

    What’s that funny hump in the blue line in the 1930s? Gold got more expensive? Why? Why did the government care about gold then? (And what does it say about their potential to want to be part of precious metals prices now?) What’s the weird rise in the early 1970s?

    Why are the S&P and the Dow flat, nominally, for the last 13 years, and down 25% in real terms? This is what a stocks guy has to do to get people excited about stocks again, after those bloodbaths – show them a chart for 150 years!

    “And, dear readers, don’t forget to check local book stores for Jeremy Siegel’s new book ‘Stocks for the 22nd Century!’”

    • Estragon says:

      The “funny hump” in the 1930′s gold price would be the 1933 action by the US gov’t effectively confiscating gold held privately in the US for monetary purposes. The confiscation required surrender of gold by May 1 1933 at $20.67/oz.

      The price was upped to $35/oz in 1934 in the gold reserve act. It stayed at that level until Nixon went off the gold standard in 1971.

      Also worth keeping in mind although an ounce of silver is pretty much the same as it was in 1885, the index components look nothing like they did in 1885 (survivorship bias).

      • ElSid says:

        Indeed, Estragon. Those were mostly just rhetorical questions, as I just assumed everyone here knew about those government interventions in the gold market, but were missing it like they don’t see their nose on their face. In fact, didn’t the government and central banks have something to do with the stock and flow of gold for MOST OF THE LAST CENTURY?

  5. CSF says:

    One should also frame this chart beginning in 1970, when the dollar and gold were un-pegged.

  6. rp says:

    Global markets crash! But Don’t Panic! Seriously, it doesn’t matter.

    I should have added, don’t sell. It doesn’t matter. I already made the
    greatest market call in a generation, and all of you are on the wrong side of my
    trade. The people losing money today are all speculators. You are just incurring
    transaction fees for nothing. It doesn’t matter what the price of anything is. It
    doesn’t even matter what the price of gold is. You need to stop and listen.
    I sold my gold to pay for the insurance on Tuesday. Millions of like minded
    individuals around the world have done the same, and believe me, they are in
    charge. We have waited patiently for the global reset, which is now. And they
    are guaranteed a fair deal. You can’t screw them, because that’s how the global
    monetary system works.
    I will encourage you, if you want to make money, to listen to the people who
    are sitting in cash. There will be a great new bull market, not just in Japan,
    but around the world. And everywhere where there is reform, peoples’ wishes
    will be met and the result will be robust economic growth. The Japanese have
    guaranteed it. Three cheers for Japan!
    There is no need to speculate anymore. You have already lost your money
    by speculating in a structural bear market. You are not making money today.
    You are not saving money today. You have lost nothing today that you had
    yesterday, and there is certainly no need to buy anything now. You are just
    incurring transaction fees.
    The crash has gotten everyone’s attention. Now you need to stop and listen.
    A bright new future awaits us, because we are not going to speculate, we are
    going to invest. And to the extent that certain problems are xed, the result
    will be robust economic growth that will change the world!
    So stop thinking like a speculator, and start thinking like a true investor.
    And thanks again to the Japanese people. Three cheers for Japan!

  7. pjmason says:

    Just an observation, but looking at the last two secular cycles it seems that there is an inverse relationship between stocks and metals. When stocks were experienced their secular bear during the 60′s,70′s, and 2000′s-to present gold and silver did quite well. When stocks were experienced their secular bull markets of the 40′s, 50′s, 80′s, and 90′s gold and silver did poorly on a relative basis.

  8. Al_Czervik says:

    What I see in that chart is a rather long period from 1895 to 1929 when a lot of money could have been made by holding stocks. In the modern era (post 1929), most of the money has been made during 34 of those 84 years (1948-65 and 1982-99). The other 50 years of the last 84 were probably not much fun overall for long-term investors.

    Until about 40 years ago, the price of gold was not allowed to float. Since that time there have been 18 years when it was generally better to own gold than just about anything else (1973-80 and 2000-11). The other 22 years, an investor would have been much better off in stocks.

    FWIW, the logarithmic scale of the graph understates how uncomfortable many stock investors have been over much of the past 13 years.

    For an investor with a *very* long time frame and the financial/mental resources to deal with 10 year periods of shitty performance, it would probably make sense to focus on investing in stocks and not bother with gold. This assumes that there are no structural changes in the economy that would cause the rate of earnings growth going forward to be less than it has been historically (and also assumes no structural changes that adversely affect the value of the currency that denominates our economy).

    Investing like Buffet is a lot easier when you have his financial resources and single-mindedness. Also, he is very good at allocating capital in a way that has worked exceptionally well during post-WWII America. I am not 100% convinced that his approach would be the one for all seasons.

  9. rd says:

    The graph assumes holding each of these items without buying or selling. It also does not include expenses for holding these items.

    A more appropriate comparison would be to add in dividends (or interest) minus expenses to the chart. We would see the gold/silver charts decline and the equity charts skyrocket due to the reinvested dividends.

    It is likely that 1-month T-bills as a proxy for a money market account would also have held its own very well against gold and silver over the past 100 years when interest was reinvested.

    Gold and silver have had two major 10 year run-ups in price (1970-1980, 2000-2010) in the past century and other than that have been largely flat. Even Jim Grant states that gold is not an inflation hedge; instead it is a hedge against unstable currencies, including default. However, you have to keep it from being confiscated in order for it to have that level of protection for the investor as the person trying to smuggle 1,000 pounds of gold and silver out of Greece on a plane discovered.

  10. Al_Czervik says:

    Gold was flat prior to 1970 because a dollar was defined as 1/35 of an ounce. Since the dollar has been allowed to float, I calculate that stocks have strongly outperformed gold about 55% of the time while gold has strongly outperformed stocks about 45% of the time.

    There is a time and a place for both in a portfolio. As far as I’m concerned, “stockbuggery” is just as irrational as “goldbuggery”. Or, for that matter, “bondbuggery” or “homebuggery” Humans tend to do that and it doesn’t help when the FED is encouraging mal-allocation of resources.

    • neddyj says:

      Al – I agree about the buggery not being limited to gold. I’ve read and heard some awful rationales for stock and bond investing too. Barry has challenged the gold bugs to a Duel. Since he’ll never change their mind, I wonder what the upside is. If gold rallies from here for a few months to a few years, and stocks do lousy – he’ll never hear the end of it from the gold bugs…

  11. neddyj says:

    duly noted – you’re a good man for fighting the noble fight Barry. I find some of the rants to be pretty entertaining, and I hope you do too.

  12. socaljoe says:

    Looks like the price of gold was equal to the SP500 twice. In the 30′s, when the dollar was fixed to gold, we had deflation and the SP500 crashed to the price of gold. In the 70′s, with a fiat dollar, the price of gold inflated to the level of the SP500. Both times, the SP500 could have been bought with an ounce of gold. Both were time of extreme distress, followed by a managed currency devaluation. In the great depression, gold was confiscated and the dollar was devalued to 1/35th ounce. In the 70′s, Nixon suspended the dollar’s gold convertibility and the dollar was allowed to devalue through a decade of inflation. I suspect another currency revaluation will be necessary to reset the current overleveraged global financial system and would not be surprised to see gold and the SP500 trade at the same level again in the future.

  13. socaljoe says:

    If you would have bought $1000 of gold 100 years ago, that gold would be worth about $70000 today.

    If you would have invested $1000 in the Dow Jones Industrial 100 years ago, you would have become the proud owner of….

    Amalgamated Copper
    Central Leather
    U.S. Rubber
    American Car and Foundry
    General Electric Company
    U.S. Rubber (First Preferred)
    American Smelting & Refining
    National Lead
    U.S. Steel
    American Sugar
    Peoples Gas
    U.S. Steel (Preferred)

    …which would be mostly worthless today… which goes a long way toward explaining the difference between gold and financial instruments for (really) long term capital preservation.

    • Socal Joe, I have to call BULLSHIT on this: The ENORMOUS advantage of buying an index is the survivorship bias. You dont buy the loser stocks, they get tossed from the index before they die. Hence the entire filed of indexing arose just because of that.

      In 1914 the Dow was 53. Today 14.500.

      An investment of $1000 would be worth over $2,7358,491 versus your $7000

      • socaljoe says:

        Barry, to replicate the DJIA you would have to be able to front-run the decisions of Dow Jones investment committee. As a retail investor, you would hear about additions and deletions from the index on the morning after, by which time the price would already have moved against you.

        Also, before the availability of discount brokerages and decimalization, transaction costs would have taken a lot of your gains… not to mention capital gains taxes along the way every time you realized a profit on a sale.

        My point is not to nit-pick the precise numbers, but to point out that gold does have certain capital preservation qualities not found in financial instruments, and that an index is not an investment.

        Gold would be worth $70000, not $7000.

      • Not even close to what the the Dow is worth — with no cost of storage, either