Question: Which investment did better from 1980 to 2012 or now, gold/silver or stock market?
Which is a better investment now gold/silver or stock market and why? I see a lot people buying tons of gold and silver now based on the fear of hyperinflation, dollar depreciation, another great depression or they will go up in value, your opinion?
Answer:
I would say that stocks are always a better investment option than precious metals (gold or silver).
Gold and silver is only a speculative asset which does not carry any value of its own. If you want to value gold or silver you will not be able to do it. The worth of gold is valued on basis of how much investors are ready to pay for them.
Mean while stocks carry value with it in accordance with the worth of its underlying business.
If you are paying Rs 100 for a stock you have option to check whether this stock is worth paying Rs 100 or not. This is called as value investing
In a long run it is always better to go for an investment option that you can measure and predict. Gold is too speculative to be called predictable.
The stock market has done better since 1980. It has gained just over 12 times. Gold was in a bubble in 1980 for many reasons. However if you ask the exact same question and ask which has been better since we went off the gold standard in 1971 just 9 years earlier then your original question then gold and silver has beat the stock markets by a ton. Gold has gained almost 48 times since 1971, silver has gained 34 times and the Dow has only gone up 12 times in 40 years. Longer term gold has outpaced the markets. Having said that, it doesn't mean that gold and silver will continue to do so. Looking forward gold and silver should outperform the markets for a while and then just like in 1980 gold will fall out of favor and stocks will take its place. Then gold will lag again like it did for the 20 year period from 1980 until 2000.
In 1980, gold peaked at $800/oz so it has picked up a factor of 2. In 1980, the Dow was below 1000 (it crossed 1000 in 1982 at the start of a great bull run). Thus the Dow has picked up a factor of 14 or so. But that doesn't include dividends which averaged about 3%/year over that period for Dow components. That's multiply by another 2.5 times so if you reinvested dividends your money grew by a factor of about 35. So gold = 2x Dow = 35x. It's not remotely close....
I think that anybody buying gold because of fear of dollar hyperinflation really needs to take an intro course in monetarism. The Fed is actually set to announce inflation targets. The Fed has an enormous balance sheet with all the bonds they have been buying and can exert enormous control on inflation (like Bernanke believes they can target it almost exactly). A Great Depression would be very bad for gold.
There are lots and lots of interesting arguments in finance. The argument about whether we are going to have dollar hyperinflation is not interesting. The person on the hyperinflation side is either a demagogue or someone who has absolutely no education in economics.
Governments do have a knack of screwing things up royally. For that reason one can not rule out gold/silver as an investment option. Seems though that the time to have purchased gold was about half way through the later Bush era. Equities certainly outperformed gold/silver from about 1980 to about 2000 by a very wide margin. But for the last 12 years it has been the reverse. The main problem with gold/silver is that it just sits there and waits for governments to screw up. If they don't it does just sit there. When they do it takes off like no other investment. Seeing as governments seem to be in a world wide screw up phase, gold/silver does have a great deal to recommend.
On the other hand certain equities (not necessarily the stock market in general though) have a couple of things going for them that gold/silver do not. 1. They earn money 2. they tend to grow those earnings 3. they tend to pay dividends 4. they tend to grow those dividends. 5. sometimes they can be had at bargain basement prices.
If there is a great depression coupled with hyper inflation then it certainly would be wise to have a stash of pre-1965 dimes, quarters, and halves on hand as trade goods. Those will be accepted when the dollar will most likely no longer be accepted.
The S&P 500 outperformed gold during that period. Gold has done extremely well in the past decade.
Diversification is key to successful long-range investments. Don't bet on any one sector, commodity or stock. And most important - I wouldn't bet on 'hyperinflation' as a threat. And, I certainly wouldn't risk my entire portfolio on the potential of 'hyperinflation'.
Inevitably, we will see 'inflation', but most analysts (Mack, Levkovich, Friedman) project will be much more controlled. No one can predict the future, particularly the price or volatility of a commodity like gold.
Gold and other precious metals do have a value. They often have industrial/manufacturing applications as well as a value for a common use as jewelry. However, much of the price volatility comes from emotion - and the misconception that if sovereign monatary systems break down (due to debt), that 'gold' or 'silver' will become the common currency. Speculation and emotion have driven the price up recently.
Currencies are no longer based upon the gold standard. At that time, they were intentionally surpressed and/or had valuations that were connected to commerce and product. So, the 'value' of gold was essentially out of the free market in America, where it was illegal to hold gold as an investment (other than in jewelry). When the US dropped the gold standard, the price was free to fluxuate. That is why you saw the value shoot upwards.
Stick to a diversified investment strategy that is designed to weather as many market conditions as possible, with a risk profile that matches you, your income and time horizon.
Commodities and other alternative investments (private equity, real estate, venture cap, etc...) that have little or no correlation to the equity and debt markets should definately be a part of a well-diversified investment portfolio. They can help mitigate the volatility of the stock and bond markets.
what he said.