I keep hearing comments about how poorly gold has performed compared to the stock market. “If I had only put my money into the stock market instead of gold, I’d be far better off.” Yes, that is true if you knew how the stock market and gold would have performed in advance over the next six years in 2009. But at the time, the stock market had just plunged and gold was on a tear. Don’t we all wish we knew the timing of market moves beforehand!
And don’t forget, we stress that gold is NOT an investment, it is an insurance policy. Stocks are an investment. They should serve a different function in your portfolio.
Let’s look at gold and the Dow (as a lose proxy for the stock market) from 2000 through 2015. I like to use 2000 because it was the first of three stock market crashes from bubble highs in the last 15 years and because that is when gold finally started it’s own bull market.
2000-2003: Bear market. On January 14, 2000 the Dow closed at 11,722.98. That was the high. Then on October 9, 2002 it plunged nearly 40% to a closing low of 7,286.27.
2003-2007: Bull market. A cyclical bull closing peak of 14,164.53 was reached exactly five years later, which looks impressive, but it does not surpass the inflation-adjusted high set on December 31, 1999.
2007-2009: Bear market. A renewed bear is recognized in summer 2008 and multiple volatility records are set that autumn. Another acute phase in early 2009 brings the index to new 12½ year closing low of 6,547.05, on March 9, 2009, for a total loss of 54% in 17 months. That’s about what gold has plunged in the last six years, but nobody speaks about the drop in stocks of the same magnitude.
2009-2015: Bull market. The Dow remains volatile during its ensuing climb, losing almost 20% during the summers of 2010 and 2011, however, by February 1, 2013, the index finally closes above 14,000 for the first time since October 2007. The Dow continues upward to surpass its prior all-time record on March 5, 2013 and, by the end of 2013, sets a new all-time inflation-adjusted high for the first time since the end of 1999. However, some minor, but significant, declines (in the form of corrections) have occurred in 2014 and leading up to the summer of 2015.
2015-present: Bear market. Since the severe plunge near the end of August 2015, the Dow attempted to gain a full recovery, but ultimately failed, thus creating an entry into a new bear market. The Dow has not had an impressive start to 2016 and this could be a very bad year for the stock market.
In 2000 silver averaged $4.95, gold averaged $279 and the silver/gold ratio was 56.4. The Dow was 11,723.
Since its high in 2000, as of today, the Dow is up 46.3%
Since its high in 2000, as of today, gold is up 395%
Gold and the Dow have been trending in opposite directions for the last six years, but we believe the trends will reverse in 2016. Larry Edelson believes that gold will reverse and move up dramatically along with the Dow. Both will go up at the same time.
If you had a good sense of timing and started buying the Dow six years ago, you would have done very well. Congratulations. I believe that if you buy gold at these prices, your sense of timing will be outstanding once again. It is smart to buy low, just don’t expect to identify a bottom until after the fact. Doug Casey believes the bottom is in. Gerald Celente believes the bottom is in. Jim Sinclair believes the bottom is in. I believe it could be in, or we are very close to a final bottom. In my book, close is good enough.
Every now and then I come across a video presentation that is really good. Here are three that you should make the time to watch.
Check out this Video Presentation from Future Money Trends if you are interested in the silver market.
Check out this Video Presentation with Grant Williams if you are interested in watching an excellent commentary on the gold market.
And here is a worthwhile interview with Gerald Celente discussing the most important trends in 2016, including gold and silver.