In ancient times, it became an ideal medium of exchange and a store of value ever since. In short, it’s nearly an ideal form of money, especially when compared to other forms of money (such as paper and digital currencies).
© pedrosek / Shutterstock.comWhen you juxtapose gold against modern world currencies, such as the U.S. dollar, the euro, the British pound, and the Japanese yen, you come away with some compelling points.
The following figure provides a snapshot of gold’s price performance since the beginning of this century (as of the first trading day in January 2000).
Gold’s price performance since the beginning of this centuryGold began in early 2000 at a price of $288, and when you measure its performance with the price in mid-2020 (June 30, 2020) — $1,817.50 — you get a 531 percent total gain (sweet!). But how well did gold do against other conventional investment assets? Take a look in the following sections.
Gold versus the financial world in general
So how did gold stack up versus the titans of the financial world?| Asset | Price Jan. 2, 2000 | Price June 30, 2020 | Total Gain/Loss Dollar Amount $ | Total Gain/ Loss Percentage % |
| Gold | $288.05 | $1,817.50 | $1,529.45 | 530.97% |
| Silver | $5.29 | $18.58 | $13.29 | 251.22% |
| Dow Jones Industrial Average (stocks) | $11,501.85 | $25,812.88 | $14,311.03 | 124.42% |
| Nasdaq (Stocks) | $4,186.19 | $10,063.67 | $5,877.48 | 140.40% |
| S&P 500 (Stocks) | $1,455.22 | $3,100.29 | $1,645.07 | 113.05% |
| Average Savings acct* | $100 | $120.50 | $20.50 | 20.5% |
| Inflation** | $1.00 | $1.53 | $0.53 more | 53% |
** Inflation rate for the sake of comparison. What would $1.00 buy in January 2000, and what would it cost to buy that same item in June 2020? (source: www.bls.gov/data/inflation_calculator.htm)
Well, well, well. The table speaks volumes about the past 20-plus years. How many people knew that gold — a dead rock — outpaced the stock market so dramatically?! Time to break it down:
- Gold crushed it! Generating a gain of more than 530 percent is awesome — who would have thunk it? It beat everything by a country mile.
- Our companion metal, silver, came in second place with a 251 percent gain — not too shabby!
- Next comes the primary stock indexes. Nasdaq came in at 140 percent, then the Dow Jones (DJIA) at 124 percent, with the S&P 500 index coming up at 113 percent.
- The savings account is there for those folks too skittish at investing and playing the safe route. But safety often means that you settle for a much lower return. In this case, you’re getting an average of 1 percent per year, ending up with 20.5 percent. And it didn’t beat inflation.
- Inflation — our yardstick and the nemesis of savers everywhere — was up 53 percent for the same time frame.
Gold versus stocks versus currencies
You see in the prior section how gold was the 800-pound gorilla in the battle royale versus other mainstream investment vehicles, but it’s important to measure gold versus its primary competitors such as stocks and currencies. In this, you’re comparing “apples to apples.”When you’re comparing gold to stocks, for example, I don’t advocate that you should be 100 percent in one or another. I could put on my “stock hat” and make a strong case for stocks in some economic conditions (such as the 1980s), and I could put on my “gold hat” and make the case that gold is superior in other conditions (such as 2020–2025).
The bottom line is I think both stocks and gold are important and needed in your portfolio. The only thing is that you rebalance the percentages of your portfolio between regular stocks and gold-related investments. You keep more in stocks when times are good for stocks and more in gold when times are good for gold. But always have something in gold (say 2 to 5 percent of your investable assets at a minimum), even when it’s not doing as well because it excels as a hedge and a backup form of “portfolio insurance.” Sometimes you don’t see the market crash or financial crisis coming, and afterward you’ll be glad you were diversified and had some gold and/or silver on hand.
Gold plays an important role as money and as a hedge against the issues of government-issued money, which is also referred to as fiat money. As this article is being written, all the major currencies — the U.S. dollar, the euro, the British pound, the yuan, the Japanese yen, and other currencies — are losing their value (depreciating) slowly but surely. Some currencies are rapidly losing their value such as those in Venezuela, Zimbabwe, and Argentina (more to come!). The main reason currencies lose their value is because they can easily be overproduced by the country’s central bank and typically at the behest of the country’s political leaders.
Because paper currencies are easily inflated, each unit of currency (dollar, euro, yen, and so on) loses value — not so for gold. As the data from the World Gold Council (WGC) confirms, the mining of gold typically adds about 2 percent to the above-ground global supplies of gold. It’s very difficult to extract it from the earth, which is part of the reason gold can retain its value versus central bank–issued currencies. You can use this article to find out how gold stacks up as a tangible investment amidst all the investment choices available today.Part of what makes “money” retain value is scarcity. If it ceases to be scarce and easily created (usually leading to overcreating it), then this leads to its diminishing value. Some gold experts even make it a big point of their speeches that a paper/digital currency will always revert to its intrinsic value, which is “zero.” Gold, meanwhile, outlived every currency in the past two millennia and likely will do so in this millennium.