Chart of the Day: The Price of Gold – Wow

Gold Chart April 15, 2013

I only keep monthly records, but the last time that I can tell that gold was this low was way back in January/February 2011.

Supposed debt crisis stabilization has made gold less attractive. Selling has also dropped the price to the point that some investors are selling to meet margin calls. According to the WSJ, this money is going into stocks (but obviously not today with the Dow down 265 points).

Gold vs. S&P 500 Index 1973 – 2010

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.

Gold’s 2010 Performance

Gold’s ride in 2010:

The price of gold closed at $1,087.50 on December 30, 2009. It closed at $1,405.50 on December 31, 2010. That’s a 29.2% increase for 2010. Wow! Compare that to the S&P 500’s total return of 15.06% and you have double wow!

I spent a little time putting together a couple of graphics showing gold’s ride since 2000 and also compared it to the S&P 500 Index.

I wanted to do a comparison of the monthly performance of gold vs. the S&P 500. I only have monthly returns for the S&P so I had to make a couple of adjustments in order to get a side-by-side comparison. So, for this graphic, I assumed a base value (beginning value) of 100 and then computed monthly values for both from 2000 – 2010. This is what I came up with:

What’s interesting is that through all 132 months, the S&P 500 had only four more months with the negative returns than gold. But, gold had seven months with returns over 10% while the S&P 500 had none.

Looking at all this brings to mind a few questions:

1. Is gold in a bubble?

2. How high can gold go?

Unfortunately, I don’t know enough to speculate on either one.

Source: My source for daily gold price numbers was USA Gold