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Gold/USD/SPX Performance, Multiple Timeframes

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December 08, 2009 – Comments (22)

There have been a lot of posts on blogs, and Caps, and I believe a Bloomberg article showing something to the effect that if you bought gold at the peak in 1980, you would only be up 100% so far, but down on your investment for almost 30 years.

An interesting but ultimately pointless "analysis". Wait, this deserves more sarcasm. """"analysis"""" (quadruple quoted).

Why? Because it assumes that you saved up all your money, bought precisely at the peak, and have done nothing with it since. You didn't have any stops in place. You didn't average down. You basically didn't do anything that normal investors would do.

The same argument can be applied to buying anything at a top and making a likewise comparison.

So a much more nuanced picture would be to show there performance of gold, compared to say the USD and SPX in 5 year increments, which is what I do below:

22 Comments – Post Your Own

#1) On December 08, 2009 at 9:19 AM, binve (< 20) wrote:

Since 1980



Since 1985



Since 1990



Since 1995



Since 2000



Since 2005



So what are a few conclusions?

Obviously if you bought gold in 1980 and did nothing else you would have a profit only recently. But as you look through time, stocks tend to outperform, and then gold tends to outperform.

It means that there are always times when an investment is good or when one is bad to get into.

But it really means, to understand an issue, you need to look at it in multiple ways and multiple timeframes. An analysis that looks at only a tiny portion of data points does nobody any good.

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#2) On December 08, 2009 at 10:00 AM, portefeuille (99.61) wrote:

spot gold in EUR.



enlarge

 



enlarge

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#3) On December 08, 2009 at 10:07 AM, portefeuille (99.61) wrote:

compared to say the USD

a drop of the USD vs. the EUR (or vs. a basket of currencies used for the U.S. dollar index) means of course that the "performance" of gold in EUR (or that basket) is worse than the "performance" in USD.

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#4) On December 08, 2009 at 11:19 AM, XMFSinchiruna (26.98) wrote:

The Since 2000 chart is of greatest interest and relevance to me, since this entire adventure has been about recognizing a multi-year secular bull market underway, and utilizing continuous fundamental and technical analysis to ascertain reasonable and conservatove targets for liquidating those positions.

You won't catch this Fool on the flip-side of a 1980-like reversal.

I dove in in 2005 .... oh to have seen it coming earlier. 

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#5) On December 08, 2009 at 11:35 AM, DarthMaul09 (29.77) wrote:

Gold did a lot better than buying the NASDAQ at the top of the dot com bubble.  Some of us may not live to see the NASDAQ at 5000 again unless hyperinflation comes to pass.

Did they mention not to invest in the NASDAQ?  Probably not.

This example supports your previous blog about objectivity or the denial of bias.

Well at least the media's attempt to lower metal and mining prices will help China, India and myself as we load up on these stocks and funds.

 

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#6) On December 08, 2009 at 11:56 AM, binve (< 20) wrote:

portefeuille, A few more data points to add more nuance and complexity to the analysis, which is always useful. Thanks!..

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#7) On December 08, 2009 at 12:00 PM, portefeuille (99.61) wrote:

spot gold in EUR.

not sure what they used for the pre-EUR time. maybe DM, ECU, or some other basket.

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#8) On December 08, 2009 at 12:16 PM, binve (< 20) wrote:

TMFSinchiruna, Thanks man :) Yep, it is hard too see a bottom as a bottom, and to dive in when you believe the fundamentals are on your side.

I started investing in gold in late 2007 / early 2008 (after reading your fanatastic posts on gold and its relevance in the macroeconomic picture, which I had not seriously considered before). I saw a nice gain turn into a large loss.

But because I am a gold investor and not a gold trader, I stood firm in my convictions and bought all the way down the correction.

Obviously make take on the gold technicals are very bullish. But lets say I am compltely wrong and we have a major wave finishing up we get another huge correction down to 600, will I be worried?

Not a chance. If we ever get back down to $600 gold, I will be buying with both hands. Any major pullback is a gift and I intend to treat it as such.

I will never "trade" gold. It is a very emotional asset class, and traders will get crushed in it. I am a fundamentally engaged investor. I know why I am invested in gold. And I have the conviction to weather any gyrations.

I will exit out of my gold positions and buy stocks with both hands when:
a) The financial system is fixed (I will even take "relatively" fixed)
b) Congress gets out of the pay of the financial system and implements reasonable laws like Glass-Steagal again
c) Stocks come down from absurd valuations
d) The US economy transitions from consumptive to productive endeavors, and the overweight 70% consumer driven GDP comes down to something more reasonable.

And I fully expect these positive developments to occur when absolutely everybody is bearish on stocks and absolutely everybody is bullish on gold.

For those calling a gold mania: I retort that we have much more to go. All of the negative Caps posts on gold is a good counterpoint for this argument.

For those calling a new bull market is stocks: Nothing has been fixed, nothing has fundamentally changed and we have much further to go down.

... Sorry man. That started out as a response to you but then turned into a tirade aimed at everybody else :)

Thanks bro!!.

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#9) On December 08, 2009 at 12:18 PM, uclayoda87 (29.37) wrote:

It's hard to believe that the Bloomberg editors could not see the weakness in their article.  Schiff also commented about it in his recent video blog.

Is propaganda the best we can expect now from our news organizations?

It's not that our government does any better, but at least we know that they have an agenda, which they are trying to push.  A free media was viewed as a check on government disinformation and it probably still is, but what is clear is that our media is no longer truly free.

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#10) On December 08, 2009 at 12:28 PM, binve (< 20) wrote:

DarthMaul09, Thanks! Exactly. I look at a lot of data and I have a very nuanced opinion on many asset classes. And anybody who takes any economic analysis, TA or FA, seriously needs to have a nuanced viewpoint.

Here are 2 big fallacies / oversimplifications that I hear many peope say over and over:

1) "Dollar Up = Stocks Down"

2) "Gold is only a hedge against inflation"

There is absolutely nothing in econominics that has only one cause and one effect. And utterly simplified anlaysis like this is not only misleading, but it is often wrong.

Because there are primary causes and secondary causes (and always multiple ones), and the primary cause at one time might become a secondary cause at a later time!!

1) Dollar Up (or Down) means Stocks Down (or Up) now, based on a very particular macroeconomic setup, but over the long term, this is not an even remotely accurated description (see: http://4.bp.blogspot.com/_OpWmYZm7O8I/SxmznXgblZI/AAAAAAAABVs/WCjoLsz5QI8/s1600-h/binve-001-Equity_Dollar_Correlation.png).

2) Gold is only a hedge against inflation. First this is an incomplete statement because it does not distinguish between monetary inflation and price inflation (most people are not even aware of the difference). And gold is a hedge against inflation and it is also a hedge against financial instablity / loss of confidence.

It the 1980s, we had massive inflation. However gold dropped. So there is a contradiction right there. Why? Because Volcker's policies returned confidence back to the financial markets. And the future outlook, even though it was inflationary at the time, was deemed to be bright enough that people poured back into equities and left the safety of gold. (An example of a primary cause and a secondary cause switchin importance).

Thanks for the comment!.

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#11) On December 08, 2009 at 12:29 PM, binve (< 20) wrote:

uclayoda87, I couldn't agree any more with your comment. Thanks!..

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#12) On December 08, 2009 at 12:36 PM, AvianFlu (25.00) wrote:

The press is still free, but they are a victim of their own lack of education and intellectual ambition. They are flaccid and easily manipulated.

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#13) On December 08, 2009 at 12:45 PM, TMFBabo (100.00) wrote:

I will exit out of my gold positions and buy stocks with both hands when:
a) The financial system is fixed (I will even take "relatively" fixed)
b) Congress gets out of the pay of the financial system and implements reasonable laws like Glass-Steagal again
c) Stocks come down from absurd valuations
d) The US economy transitions from consumptive to productive endeavors, and the overweight 70% consumer driven GDP comes down to something more reasonable.

Are you basing the "stocks are absurd" sentiment on the market's valuation as a whole or because you can't find any undervalued individual stocks? I think the market's slightly overvalued, but I am still able to find decent bargains here and there.  I'm curious to hear your thoughts.

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#14) On December 08, 2009 at 12:53 PM, binve (< 20) wrote:

bullishbabo,

I am referring to stocks as a general asset class (I agree with you that you can always find exceptions to the rule in indiviual issues)

Here was my last major update to my Valuation analysis for the S&P 500

http://marketthoughtsandanalysis.blogspot.com/2009/10/sentiment-pe-bpspx-vix-and-cpc.html..

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#15) On December 08, 2009 at 12:56 PM, binve (< 20) wrote:

AvianFlu, Yes, that is the other part of it as well. Don't always assume a conspiracy when behavior can be chalked up to incompetence :)..

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#16) On December 08, 2009 at 12:56 PM, GoodVibe4Ever (< 20) wrote:

Binve - You were just talking about objectivity and bias the other day, my brother. :( I couldn't resist but comment on this blog. especially after I read the comments about the "bias ignorant media" who actually report everyday on a new gold high calling it an investor safe heaven among many favorable talk. I think the knife cuts both ways if you want to be objective.

Here is the link below from Bloomeberg. I believe people can read the analysis for themselves. I am not sure how many people here who commented or calling it "media betrayal" and other emotional slogans read it first. 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aK_9rHEF2irA&pos=3

But now for your charts. They are the best evidence that gold WAS a lousy long-term investment. NO QUESTION ASKED!

Even your own charts are the best evidence of that. The first 3 time-frames you posted (from 81-96) are under-performing with some sharply depend on where you started (as much as negative 63%). So even if you average and not buy at the top as the article measured, chances you still under.

The 4th chart, gold underperformed most of the period except only the last year. Now you are down four out of 6 of your charts. :)

Come to the fifth and you will have the miracle chart after 2000. So unless you started at the gold bottom, which many shrugged and shun back then as you know or started to add heavily to your losing gold from the past 20 years of losses when gold gathered steam and attracted capital thereafter, you are still down today after all this rally from $250 to $1200+ especially if you also consider inflation. Dollar still mainly priced in those green dollars or other fiat currencies, right?

One important thing you also avoided to mention but I am sure you are well aware of one point that favor dollars, treasuries, and stocks over gold. Your charts are not reflecting the true hidden extra value of the dollar in the form of safe treasuries that earns yield or insured saving accounts that earns interest or  stocks that earns dividends for the S&P 500 beside their huge capital gain reflected in your charts.  Am I right?

Here is the best thoughts from the article that puts things into prospective;

"Investors who paid $850 an ounce back then earned 44 percent as gold reached a record $1,226.56 on Dec. 3 in London. The Standard & Poor’s 500 stock index produced a 22-fold return with dividends reinvested, Treasuries rose 11-fold and cash in the average U.S. checking account rose at least 92 percent

Read also this kicker:

"On an inflation-adjusted basis, gold investors are still 79 percent away from getting their money back."

.....

DOWN 79% from that $850 even when the current gold is $1200+ Come on man! If it quack like a duck, chances it is a duck. :) Who is the biased here? Even Sinch can agree with me about my point here. Unless you started investing in gold let's say mid/late 1990 at worst to early 2000, you have very bad long-term investment at hand at all time frames and this is the point of the article, which is spot on.

On a good note, this means that gold @ 1200 US fictional dollars is undervalued if not dirt cheap and there's no such bubble and you can backup the truck and load. :) No pun intended!

As you know, I believe that both dollar and gold are the worst long-term investment that can be found. Anything that didn't produce yield, interest, dividend, and/or capital gains fits the bill and nothing more can fit than gold. If gold is store of value, which is misconception in my opinion, why do you think the king of value investing called gold a useless metal that they dug from a hole to put it in another hole and instead went and bought trains, burger, and coke instead until this day.

Yes, I believe gold will outperform stocks and dollars until 2020 but for now we have to admit that gold was a very bad investment and no store of value whatsoever for the last 30 years. 

As a last note; remember that central banks, major holders for diversification sake, as well as gold bugs don't sell their gold. They buy it and hold it even if prices appreciate. So yes, mostly they didn't have any stops in place, didn't do anything that normal investors would do. Maybe they averaged down. Though also this I doubt because everyone hated gold in favor of stocks, bonds, etc. until recently (last five years).

So I believe most of that old gold in their vault they bought decades ago fit that article well. I believe that those who invested in those now trashed treasuries are better off today with the interest they already collected and the liquidity they can come up with anytime unlike this dust accumulating metal lurking in their vaults that accumulate ZERO interest. And if they wish they can buy gold even at these prices with those treasuries and pocket the difference they gained all these years from holding treasuries instead of gold. And this is just a mental exercise than "how to" or what will happen when they do if they do.

As this BIG and not to ignore central bank said today;

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4y4aVBOnVOM

"once gold is purchased, it’s just kept in a safe and is not put up for sale even if prices rise.

I hope this added value. If not, just throw me under the bus. After all, who am I to talk about the precious metal? Just a youngster who need a lot of time to learn more. :)

  This is all I have to say about that as Forrest Gump used to say.

               My name is Forrest... Forrest Gump! :)

GoodVibe

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#17) On December 08, 2009 at 1:03 PM, GoodVibe4Ever (< 20) wrote:

One last thing - I forgot to mention that silver is even worse if you consider silver $50 high that we still far below it until today. So silver, which didn't generate any interest, yield, or dividend as well as still under water by all measure when it comes to capital gains, can make silver investors easily the worst of all even worse than gold investors.

GoodVibe

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#18) On December 08, 2009 at 1:24 PM, binve (< 20) wrote:

GoodVibe4Ever,

Thanks for the comment man!

I agree we don't see eye to on gold.

But before I delve into the specifics, let me address your critique of my objectivity. I am not going to bristle at this, nor am I going to turn this into an argument (and I do fully admit that I have been cranky recently and my terseness has been like sandpaper in several of my comments - but based on a lack of sleep, that shound be at least understandable, if not forgiveable).

You were just talking about objectivity and bias the other day, my brother. :(

That's right. And I still stand by my statements. Here was the conservation between you and I on my other blog

GoodVibe
What's up man? I always had serious issue with this chart and your 1 2 count on it. It really doesn't make any sense to me. Sorry, you asked for blunt comments. :) http://3.bp.blogspot.com/_OpWmYZm7O8I/Sxmzy7tEX...

Then you built upon that count, the rest of your charts, that is silver and miners because you believe that there is a fundamental floor under gold that will prevent it from going under 2008 low, right? So you decided to take the bullish route and nothing else.

With the move above $1000 don't you think it is much accurate according to EW to call it 5 of {1} at the least. If this is the size of 1 as in your chart with 2 just a blip, how do you think 3 will be? That would be a real euphoria! :) - No pun intended. I know you are not a gold bug. Have a good weekend, my brother.

binve in reply to GoodVibe    
Hey GV! How are you brother!!

LOL! I know you have issues with my gold count :) I did not really expect much agreement with this post, and in fact I expected far more disagreement than agreement. But yes I did ask for blunt comments and I do gratefully accept them.

So, yes I am very bullish on gold technically and fundamentally. And this is only one possible count. This is probably the most bullish count possible. But what I am trying to show, the real point of this post and these charts is that this is a *viable* count. It is an absolutely valid EW interpretation, it breaks absolutely no rules. You may not agree with them. You may have an interpretation that you think is better, but that does not negate the fact that this is a viable possible count.

So there are obviously other interpretations. One like you say, that this is the 5th wave of 1. Another absolutely valid interpretation. In that case we might correct all the way back to $600. This is not at all impossible.

But like I have said in the past, I am a gold investor, not a gold trader. I honestly *do not* care what the price of gold is currently. And if we get a pullback to $600, it will be the biggest gift all of us could get. I bought with both hands during the last correction to $600, and I sure as hell would be doing it again if we get another pullback.

But getting back to my charts, because the bullish count I show above is a *valid possible count* we may never get another substantial correction before the big run up. My point is the run up could in fact be starting now.

So people would be waiting for a correction that never comes.

I am fundamentally engaged in gold because what is driving gold (inflation / loss of confidence in financial markets / a flight to honest money) will become more powerful in the future, not less.

That is my theory at least and that is how I am invested.

Have a great weekend man!!

So you can see in my response that I acknowledge your count. I do not say it is implossible at all!! But Daneric has a very similar count to yours as do a number of Elliott Wave blogs. I have my count as the bullish alternative because a) I believe gold to be in a secular bull market and b) it is viable.

You might not agree with it, and that's fine.

But you are questioning my objectivity. It's not like I don't understand your argument. It's not like I am igonring it. But after I weigh all the evidence (and believe me, I have weighed a lot), I simply do not agree with it.

This is not confrontational, it is simply a difference of opinions.

This is is why we are still friends. Even when I don't agree with your opinion, I still respect it. I fully admit that my emotions have gotten the better of me in the past, and I have apologized for it. But I think there are some issues where we have to simply agree to disagree.

I fully believe you are looking at the issue from your point of view objectively and have come to your opinion. I look at the same data from my point of view objectively and have come to a different opinion.

The difference then lies in our point of view, because we are 2 different people and no 2 people sees the world in exactly the same way.

I know you an respect you, and I can promise that this day forward I will never question your objectivity. I hope you will do the same for me.

Regarding some of the specific points:

But now for your charts. They are the best evidence that gold WAS a lousy long-term investment. NO QUESTION ASKED!

No, I completely disagree. It depends on what you call "long term" which is subjective.

Since 1980: gold lousy compared to stocks
Since 1985: gold lousy
Since 1990: Almost even
Since 1995: outperfromed
Since 2000: outperformed
Since 2005: outperformed

I could interview 6 different people and all 6 will have a different answer to what constiutes "long term" for them.

DOWN 79% from that $850 even when the current gold is $1200+ Come on man! If it quack like a duck, chances it is a duck. :) Who is the biased here? Even Sinch can agree with me about my point here. Unless you started investing in gold let's say mid/late 1990 at worst to early 2000, you have very bad long-term investment at hand at all time frames and this is the point of the article, which is spot on.

I agree with your statement here 100%. But again I go to what I wrote at the beginning of my post: Because it assumes that you saved up all your money, bought precisely at the peak, and have done nothing with it since. You didn't have any stops in place. You didn't average down. You basically didn't do anything that normal investors would do.

I didn't buy my gold at the peak in 2008 and just let it sit! If I wasn't convinced of my position I will have set a stop and it would have triggered. But instead I bought down because I felt like gold's value was improving with each pullback, so I bought more.

Again, there is a difference in viewpoint. I think gold represents monetary value and stablity, others see a shiny yellow rock. To each his own.

I hope this added value. If not, just throw me under the bus. After all, who am I to talk about the precious metal? Just a youngster who need a lot of time to learn more. :)

Your comments always add value!! Even if I don't agree with them, I will always listen to them.

Thanks my man,

Your friend,
binve.

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#19) On December 08, 2009 at 1:33 PM, binve (< 20) wrote:

GoodVibe, And you are absolutely right, dividends are not accounted for in this analysis. Gold pays no dividends and the S&P does, which is a very big disctinction. Thanks!

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#20) On December 08, 2009 at 2:56 PM, GoodVibe4Ever (< 20) wrote:

Hi Binve - The first half of your response is not related to my response. Your EW count is objective and valid as I told even if I don't believe it to have the right look or fit but this is a different story. So I never questioned your objectivity there. I even congratulated you earlier for capturing this parabolic move in gold after crossing $1000 (even if I believe it will lose steam and come back to earth again and you doubt it or welcome it) while I sat on my hand. So I hope this part out of the way.

Second part - From your reply and after I detailed to you why gold WAS and I emphasized it up there for a good reason is a bad long-term investment in term of real % and dollar return by all measure comparing to other investments and you still believe it is, then we have a major difference in measuring things.

I thought that THIS blog not BINVE missed the objectivity that I used and expect from you. We are all humans and I thought there were no offense there. My apology at any rate. I sometimes do or say things or put them in not objective way or without empirical evidences as some like to remind me. I like this word! LOL

But now I see that THIS blog in a different way than lacking objectivity. It is lacking sugar - Can you pass me some. :) No seriously, Binve. If you consider that the norm for gold investors is to pick their spot, trade it with stops and average to it and all that, which is not true in reality, then you are objective but from your own point of view. I will not argue with you about that. You are an engineer, persuasive, and I am just a poor boy. :)

But I am telling you this is not a valid assumption on your part, which made your case not as strong as just saying gold performed well for the last ten years and that is about it instead of calling others out who believe the article to be objective. I myself as well as the authors of this article clearly will NEVER consider ten years as long-term investment at all when we compare any investment to other investments. I don't know about you but this is me.

I am telling you even if you could invest in gold when gold was $30 in 1930s, gold still will under perform the plain DOW and when you add dividends to it, gold is in deep water. So gold ONLY performed well if you wipe out all these years before 2001 and say; gold is a great long-term investment.

Hey, this is like me going back to the last 18 months before the break above $1000 and tell you that gold returned ZERO to -27% loss on your investment in that period which makes it a poor short term investment but then I will be omitting the fact about the return AFTER the break out as well let us say 2007 return. But when I say that miners and silver are bad investment if you started investing in early 2008, then I have valid point. (see chart here) Remember, most gold investors are buy and hold investors, they only add and if they trade, they just shave a little but always add. Listen to yourself, You say I will never sell my gold or miners but will always add. This is how they approached gold 30 years ago. You have good reasons now unlike them back then.

Okay, even if you could go back at the time of Sparta, gold still will under-perform. We are awash in world of fiat currencies, credit and derivatives that only heaven knows who have what and where. It is all imaginary including gold. It is what we agree to it more than what is real.

Last - I wasn't talking about YOU or anyone else investment at that matter. Come on! You are just 29 years old. How would you've been investing in gold back then. :)

If we have anything to add, then let us email about it. I apologize for posting it here. Not my habit you know. I was just one of those bloggers you mentioned who used that article in my last article and I guess I felt entitled to a reply. I even forgot to use your blog instead. My bad.

Be good, my brother.

GoodVibe

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#21) On December 08, 2009 at 3:06 PM, binve (< 20) wrote:

GV,

LOL! No worries man!! I welcome your opinion on any of my blogs at any time!

I will agree that all of your points above are extremely valid counterarguments! I will not dispute any of them and let them stand on their own. Thank you for making them.

The only factual error I will correct is that I am not 29. I am in my mid-thirties (without getting more specific than that) :)

So I will let you have the last word! (Except I guess technically this is the last word - DOH!) ... :)

Thanks brother!
binve

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#22) On December 09, 2009 at 5:32 AM, MGDG (34.72) wrote:

I don't understand why so many are fixated with the performance of Gold from it's intraday top in Jan. 1980. If one had purchased Gold only 10 years earlier in Jan. 1970, they would have paid $34.94 and have a 3129.25% non-inflation adjusted return as of the Dec. 8th 2009 close of $1,128.30.

Gold and Stocks, Bonds or USD don't correlate very well and picking one of them at a peak and comparing against the other asset class will result in under performing returns.

 

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