Gold vs. Stock Market

In 2009, the 50 year return on gold surpassed the 50 year return in the stock market, and this trend has only continued since then. This is a great signal of gold's longevity and lasting value. When you invest in the stock market, you run the risk that your investment could potentially be worth nothing in the future. Companies become bankrupt and close up shop all the time. With gold however, you have a commodity that behaves like currency. Unlike paper money however, gold has an intrinsic value that it will always maintain. It will never be worth nothing, thanks to gold's extraordinary properties and extreme scarcity.

In 1959, the Dow Jones Industrial Average was at 616. As of March 2009, the Dow Jones stands at 7216. That makes the 50 year return on the Dow Jones 1071%. If we assume that this investment would also return a 3% dividend yield, it would rise to 1221%.

In 1959 an ounce of gold was worth $35 dollars an ounce. Now it's worth $922, making the return on a 50 year investment 2534%

Many analysts believe that we are heading to a Dow-to-gold ratio (the price of the Dow Jones Industrial Average divided by the price of one ounce of gold) to approach one before the rise in gold prices peaks and begins to go back down again. Some analysts expect it to go even lower than that before it's all over. Right now the ratio hovers around 6 or 7, which means that gold still has much to gain in price in the future. It is nowhere near peaking in price yet. This ratio is not even taking into account the record lows that the Dow has taken in this month alone.

It is a great idea to buy gold at its current price as an insurance against further losses in the stock market. Though gold has intrinsic value and therefore faces a long climb upwards in price, there is no telling how low stocks can continue to fall before they finally rebound. It is fully expected that gold will weather today's current storm well. Financial advisors recommend that at least 5-15% of your portfolio is allocated to gold or other precious metals.

Long periods of stock performance are often followed by long periods of high gold performance, leading to many comparisons between the two types of investments. It seems that the biggest difference between stocks and gold is that stocks flourish under stable political systems and periods. Meanwhile, the demand for gold seems to skyrocket during times of uncertainty, when people are eager to turn back to the dependable performance of gold prices.

AskarAkayev's research group predicted a collapse in gold prices in May-June 2011. They are certainly not the only group to write off gold as a worthwhile investment. Nonetheless, as everyone knows, gold did not collapse. Instead, it continues to perform at record breaking prices-up to $1600 per troy ounce of gold.