I have returned just to defend gold from the marauders here who are spouting what is some obvious nonsense.
No asset or asset class returns an income for nothing. Income is generated and (sometimes) returned on a risk basis. This applies to rental income, interest rates, market cap expansion, *everything*. Only the ignorant would believe an asset is guaranteed a return.
An ounce of gold is a unit with the following properties:
* Exists in the physical plane
* It cannot be diluted and has extreme chemical stability/nonreactive properties.
* It holds no economic function (i.e. hoarding it does not disrupt the economy) - this also happens to make it the perfect diversification asset for investments with high correlation to economic function but that is another story.
* It has no counter-party risk
This is the absolute exemplar in a "risk free" asset.
So let's compare apples to apples here and leave the oranges out of it.
When we are trying to determine how gold has performed, it must be against the same criteria (
since otherwise we should be examining how gold performed if we had loaned it out, and that would depend entirely on who it was loaned to -- guess what, the performance of gold loaned out is not dissimilar to the performance of other currencies loaned out).
Essentially there is only one other asset which can match gold in this comparison and that is hard cash in a box under your bed. History has shown that on timelines of over 50-100 years (pension funds, endowments, Central Banks, etc care even if you do not) even cash does not hold up due to dilution and counter-party risk (for example see post WW2 50% devaluation of silver currency in Aus or Nixon closing gold window in US).
I figured all of this would be eminently obvious to the people who have shown up to take such glee in the decline of the price of gold. I wonder why they don't also troll the subforums for stocks which don't pay dividends or for that matter, any equity or asset class which has not compounded at above the average rate?
Anyway. Since this is
ASF, we compare the performance of an ounce of gold to an AUD held in a box under the bed. We do not compare against the USD unless there were actually USDs under our bed at some point. Now, just how has an ounce of gold done compared to an AUD held in a box under the bed? Let's take a look...
Now this is an interesting enough chart, especially if you consider things like starting value and rate of change over different time periods, but what I always like to do is flip it over as that is when the waterfall nature of cash underperformance becomes apparent:
I feel at this point if you do not "catch my drift" then you never will, and I question what you are doing wasting your time trolling the gold forum if you aren't interested in such a crappy asset.
However, as a small bonus chart, why don't we see how we would have fared if we had put money into the 500 of the largest (and therefore, best, right?) global companies and sold gold.
Now, you might argue that a total return chart would look less horrifying, and I agree, but I can assure you that it's only slightly less horrifying. I didn't post this last chart in any attempt to "prove" gold is better than stocks after just explaining for over a page the difference between them, but rather to show how gold is highlighting a problem which the global economy has suffered since before the tech bubble (hint: valuation ratios like MC/GDP or CAPE show a very similar pattern).
Morons.