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Gold vs. S&P 500 Index 1973 – 2010

By JLP | February 15, 2011

This post expands on my post from last week.

This first graphic takes a look at the price of gold vs. the S&P 500 Total Return Index going back to 1973. The website I used for the gold price data, had daily data going back to the beginning of 1973. The data prior to that was restricted to monthly averages and that only went back to 1970. Regardless, there is enough data to create an interesting chart. To create this chart, I began with $100 worth each of gold and the S&P 500 Index.

As you can see, gold stayed relatively flat—except for the spike in the late-70s when it nearly doubled in price—until the beginning of 2006. People buy gold when they are scared and 2006 gave them plenty of reasons to be scared.

Another interesting way to look at gold vs. the S&P 500 (thanks to AFM reader, BG, for the suggestion), is to divide the S&P 500 Index by the price of gold. To perform this task, I had to do some backtracking in order to get a value for the index. My numbers will be off due to rounding but they’ll still give us an idea of the relationship between gold and S&P 500 Index over the last four decades. My beginning value for the S&P 500 Total Return Index was 59.65 on December 31, 1972. The price of gold on that day was $63.91 for a ratio of .93:

As you can see, when the price of gold stayed flat during the 80s and 90s, the S&P grew to be worth nearly eight times the value of gold. It peaked in late 1999 to early 2000, which was when the dot com bubble burst. It’s been on a jagged descent since then. The S&P 500 Index is now worth about 1.5 times the price of gold.

On a total return basis, gold has had an average annual growth rate of 8.47% (1973-2010), while the S&P 500 TR Index has had an average annual growth rate of 9.84%. Neither of these numbers reflect sales and management expenses or transaction fees.

Topics: Gold, S&P 500 Index | 5 Comments »


5 Responses to “Gold vs. S&P 500 Index 1973 – 2010”

  1. Aaron Says:
    February 15th, 2011 at 1:46 pm

    Hi JLP,

    Just want to be sure I’m reading the last graph correctly. The units for “S&P500/price of gold” would be dollars per (dollars/ounce), right? That cancels out to ounces. That would mean that at your last data point (late 2010?) a single “share” of the S&P 500 index cost around 1.5 ounces of gold, and at the index’s peak, it took ~7.5 ounces to buy a share.

    Do I have that right? If so, then it’s currently down to about 0.97 ounces, barely above where it started on your graph.

  2. BG Says:
    February 15th, 2011 at 5:46 pm

    Aaron) Today, the S&P500 is at 1328, and gold is 1374, so you got it: 0.97 ounces of gold to buy one “share” of the S&P500 index.

    The beauty of a graph like this is it takes inflation (the relative value of a dollar over time) out of the equation — and puts into perspective the stock market peak of 2007, at least relative to gold.

  3. JLP Says:
    February 15th, 2011 at 6:05 pm

    BG,

    I use the S&P 500 Total Return Index, which closed at 2237.9 today.

    Aaron,

    Yes, I used the value for one ounce of gold for the gold number. Gold is currently trading at around $1,372.75 per ounce (Source). Using the closing value for the S&P 500 Total Return Index—which includes dividends—of 2237.9, I get a ratio of 1.63, which is still very low.

  4. JLP Says:
    February 15th, 2011 at 6:10 pm

    Aaron,

    I altered the graphic slightly to make it more clear. Sorry for the confusion.

  5. BG Says:
    February 15th, 2011 at 6:12 pm

    JLP) ah, you are correct — I wasn’t looking at the TR index. As for 1.63 being “low” — I don’t know. Historically (pre dot-com bubble) it was below 2, which is where we are again.

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