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.