Gold Bullion vs Stock Market

As opposed to equities, which can go from very high levels down to zero in a very short time (Lehman Brothers was more than $80 a share in mid-2007), gold is never going to zero. When other markets collapse, gold has historically seen huge increases in value as people make a quick flight to quality. Throughout history, gold has been an asset that protects wealth and has the ability to grow wealth, especially when the equities markets and the global economy are in such negative territory.

The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes. Gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system. This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The ratio peaked on January 14th, 2000 a value of 41.3 and has fallen sharply since. William Anton III wrote in the 2004 issue of Jefferson Coin and Bullion "...downward movement in the Dow/gold ratio is unlikely to stop precisely at the mean trendline. The extreme distension of the the 90s will likely overshoot to the opposite extreme in the current cycle."

On January 24 2008, gold broke the $900 mark per ounce for the first time. It continued onward to top $1,000 an ounce on March 13, 2008, $1,100 an ounce on November 9th, 2009 and $1,200 an ounce for the first time on December 1st, 2009.

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