GOLD AND SILVER VS. STOCKSBuy Gold Monthly >
Since the year 2000 (20 years ago) Gold and Silver have quadrupled in value. Why?
This article is not intended as investment advice, this is simply a look at the price then, compared to now, and some significant events that occurred along the way.
Gold and Silver are often referred to as a ‘hedge against inflation.’ In the most basic terms, Gold and Silver has a set value that never really changes*. What does change is the value of the fiat currency that is used to purchase the precious metal. For example, if the value of the fiat currency (ex. USD) goes down, the amount of that currency needed to purchase Gold or Silver goes up. This explanation does, however, come with a few caveats.
*The LBMA (London Bullion Market Association) sets the price of the precious metals based on a multitude of factors but these adjustments are mostly based on theoretical as well as provisional mining contracts. This is the most accurate attempt at judging the amount of demand this particular industry will create and how much supply is needed. This is because supply and demand plays a roll in all commodity markets.
Keep in mind that the supply for actual investment bullion is a mere 17% of the entire $200 billion dollar annual Gold market. This is because cross-industry demand encompasses everything from dental, computers, cell phones, TVs, automotive, aerospace, and of course jewelry.
So, the price of Gold and Silver has quadrupled in the last 20 years because of inflation (the dollar not going as far as it did) and demand (which has risen exponentially due to the various tech sectors). Therefore investors, news sources and ‘gold gurus’ always suggest that the price of precious metals will go up. This is because it’s pretty obvious and a safe bet that the global demand for things like cell phones, cars, solar panels (all of which contain precious metals) will not only be in demand but the demand will increase, even if you just relied on the planets exponentially growing human population.
Get rich quick? A historic no.
It’s important to mention that the precious metal markets are hardly volatile, in fact, its often referred to as a ‘safe haven’ among investors. This is because it has an excellent historic track record of maintaining its value even in adverse economic climates. It is not something like Bitcoin, which saw its price go up by 5,800% in the matter of 3 years and then lose more than half its gains 4 months later.
Historic Timeline Comparison of Gold Vs. Traditional Stocks
Historically, precious metals have weathered some of our nations most terrible events, here are the last notable economic crisis’s in the last 20 years.
On September 11th, 2001 the United States suffered its worst attack on American soil since Pearl Harbor.
- The Dow Jones Industrial Average fell over 3,000 points before it started its recovery 2 years later.
- Gold increased by 14% in the same time frame and never dipped below that number again.
In late 2007 the ‘2008 Financial Crisis’ triggered by deregulation of the market derivatives trading that lead to predatory subprime mortgage lending causing the worst economic disaster since the Great Depression.
- The Dow Jones Industrial Average fell over 6,500 points before starting its upturn.
- Gold increased by 35% and only dipped below that new record high for 18 months before starting an upturn for 24 straight months’ worth of gains.
In early 2020 the United States economy was impacted by the novel Coronavirus (COVID-19) pandemic that has brought some parts of our economy to a grinding halt (on-going).
- The Dow Jones initially lost a staggering 10,000 points (which is its biggest historic loss in history) later gaining back most of the losses but remains (as of June, 2020) 16% lower than its YTD high (which coincidentally was the DIJA all time high).
- Gold has increased 13% since the economic downturn despite a shortage in investment bullion caused by an alarming amount of panic buying.
How does the DIJA and Gold stack up against each other overall in the last 20 years?
- The Down Jones Industrial Average has risen in value by a whopping 127% since January of 2000.
- Gold on the other hand has quadrupled that gain by an astonishing 549% since January 2000.
It boils down to strategy
Gold has quite literally quadrupled in gains in comparison to one of the most popular and oldest stocks on the New York Stock Exchange. This is relatively known information and anyone who has spent one iota comparing historic market prices knows this. Then why the stigma?
It generally boils down to strategy. The newest study reveals that the average time someone holds onto a stock in the market has decreased from 8 years (in 1960) to less than 2 years in 2000. Though data is becoming skewed with the advent of online trading platforms, some of these platforms report stocks being held on average for 4 months from 2018 to 2020. As mentioned above, the precious metals market is not at all volatile like the stock market. This makes it possible for day traders and financial advisors to make fortunes trading stocks (both buying and selling) more frequently based on mass information consumption like financial earning reports, current global events and news headlines.
Investors more commonly choose a strategy focused on the ‘long game’ when it comes to Precious Metals and often choose a long term, over time, dollar cost average plan for their physical precious metals. Often using constant gains in the metal market to reduce immediate losses that may occur in the stock market. Some investors also buy large quantities of Gold when the potential for inflation occurs due to increases in the federal money supply, affectively mitigating their net worth being decreased by the value loss in their country’s fiat currency. These seem to be the most popular strategies among the ways to invest in precious metals.
Anyway, fellow Gold and Silver stackers, that is it for today. We hope you enjoyed the article and would really appreciate clicking that like button and sharing this article with friends and family. If you found any inaccuracies or grammatical issues, please let us know by e-mail at ‘firstname.lastname@example.org’ so we correct the error right away.
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Great historical perception of gold and silver prices. A good read for everyone investing in precious metals.