Everyone thinks the stock market is doing well...but look what it has done in terms of real money – gold. Richard Russell reminds us that you could have bought an ounce of gold on January 18th, 1980, for US$835. On that same day, the Dow was only a little higher, at 867. In other words, you could have bought almost the entire Dow for one ounce of gold.
Oh, if only we had been around then to give you a Trade of the Decade – sell gold, buy the Dow. You could have watched your stocks go over 13,000...while gold fell below US$270, at which point you could have traded your Dow stocks for 43 ounces of gold! What a trade!
Unfortunately, the Internet hadn’t been invented...The Daily Reckoning hadn’t been imagined...and your editor hadn’t the sense to make the call anyway. He was convinced, along with the rest of the gold bugs, that gold would keep going up. He was, of course, dead wrong. Gold fell and the Dow rose...not just for one decade...but for two!
But 20 years is a long time to suffer a bear market in your favourite commodity. It gives a man a reason to think...and time to do it. If he is still solvent...and still compus mentis...at the end of it, he has a great advantage over other mortals. He has made such a huge mistake for such a long time that the law of averages begins to work for him. Nobody can be that stupid forever.
Finally, the porch light comes on. ‘Hey...’ he says to himself. ‘Markets go up...and down.’
And so, with the confidence of the recently humiliated, your editor gave his legendary Trade of the Decade signal in January 2000: sell the Dow, buy gold. Since then, price of gold has more than doubled...and the Dow has edged up a tiny bit. Instead of getting 43 ounces of gold for the Dow, today, you will not even get 18.
We are only about half way through this cycle, we reckon. The Dow and gold will meet again, somewhere in the future. Probably somewhere in the middle – around 7,000...when investors have been turned off to US stocks, and the Dow has sunk...and when speculators have bid up the price of gold to dizzy heights.
Then, trust us this time, dear reader, we will remember to give the ‘sell gold, buy the Dow’ signal. At least, we hope so.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Hugh Burgett on 31 October 2007:
Why do people want to own something that gives them nothing, stocks may be over valued, over priced , but they do give a dividend usually. Even when stock prices turn to dust if the world turns there may be some income. Gold on the other hand has value if somebody else wants it, when times get bad would you prefer to trade something of practical value, food or fuel, can you swipe a gold bullion in a atm, when you need to access this asset how will you do it travel to Perth, Switzland to chisel some off to hand to a trader for what, some thing else off "value" determined by who?
I think much of the gold is owned by the credit crazed people you constantly write about and very soon they will give it the flick so as to pay back the debt that suddenly is choking them, at this stage you wish that at $800+/- was enough for you and had got the dollars because regardless that is what the world will be using, or would you suggest some other currency, maybe the au$, its good now but like gold it goes up and down depends who wants it. How many people in this world survive on less then $50 week, $5 a day, proves one thing you dont need much to live, maybe not in the way you have been but they eat, sleep and procreate and isn't that the best part of life
sorry im over the gold thing.
Comment by Pete on 1 November 2007:
Hugh I can understand and partly agree with the first part of your rant, but as for 'life without money' ... screw that!!
Comment by fazsha on 6 March 2008:
I always like it when a guy like Hugh Burgett shows up and reassures me that not only is most of the public not IN gold, they don't UNDERSTAND gold. He doesn't understand how a company can make money and yet effectively drain all the profits out to the top executives though option grants combined with stock buybacks. Dell has been a profitable company the last 5 years but is selling 20% lower than 5 years ago even though they never paid a dividend. It wasn't because it was overvalued 5 years ago (remember, that was 2003, near the bottom of the plunge), it's because they spent all the cash on the executives, who own 10% of the outstanding shares. There's a leak in the bottom of the Dell boat.
Comment by John on 6 March 2008:
Hugh,
People desire gold for the same reason they desire any currency -- because they can trade it for goods and services later. The only difference with gold is that they can't be robbed by a bunch of politicians and bankers that are constantly printing more of it to keep themselves in power.
Comment by SlowLearner from Briz on 6 March 2008:
Hi All,
Pardon my ignorance here, but are we talking about buying into gold stocks or physically purchasing bars of gold (to stash under the bed, or wherever?)
Comment by Ben on 6 March 2008:
Hey SlowLearner
They are talking about investing in physical gold, but without having to hold it. Companies exist who enable you to buy gold bullion and they will store it - I believe you receive a cert of ownereship or similar (like shares), so that you can then sell it back to the market when the price has changed (hopefully in your favour).
Back in September if you invested around US$700 you would have owned an ounce of Gold. Today that ounce would be worth approx US$990.
Gold is seen as more stable long term than phyical money because governments cannot suddenly produce more of it to control its value.
Comment by Paul on 7 March 2008:
having someone else hold a valuable item for you when alls you have is a piece of paper is retarded beyond belief. even currency becomes worthless when like in russia a barrow load of rubles would buy a loaf of bread. held gold is only useful when the economy rights itself after a long period of the poseidon adventure. if you want to know whats valuable in a time or depression read "the road" by cormac mccarthy, and of course have a weapon at your disposal.