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Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing gi

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)

zamfi 6y ago
This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)
- nostromo 6y ago
  Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle. 2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon. But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.
  - zamfi 6y ago
    > Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle I guess it depends on your definition of amazing. If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns. Personally, I don't find that particularly amazing, but to each their own!
throw0101a 6y ago
And in six of those years (2013-2019) it was absolutely flat: * https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I. I am constantly reminded of Buffett's 2011 take: > Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? > Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. > Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. > A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. * https://www.berkshirehathaway.com/letters/2011ltr.pdf https://www.berkshirehathaway.com/letters/2011ltr.pdf Gold has not been a very useful 'investment' over the long-term: * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/ What are the expected returns of gold given that it has no earnings?
- eru 6y ago
  Of course, farmland might get confiscated from you. Or you might have to pay taxes on it, etc. A small amount of gold might get lost or stolen and it's usually more annoying to sell than stocks. But otherwise, you can just keep it in a sock under your pillow and be reasonably sure it's still there in a few decades.
  - throw0101a 6y ago
    > Of course, farmland might get confiscated from you. In what area of the world do you live in that these scenarios are actually keeping you up at night?
    - analyte123 6y ago
      See this massive list of countries where this has occurred: https://en.m.wikipedia.org/wiki/Land_reforms_by_country https://en.m.wikipedia.org/wiki/Land_reforms_by_country This is not even to mention the prospect of “constructive” land reform, e.g. squeezing landowners (or certain disfavored types of landowners) with policy and then increasing property or income taxes to the point where they have no choice but to sell at a loss.
      - throw0101a 6y ago
        That doesn't answer my question: > In what area of the world do you live in that these scenarios are actually keeping you up at night? Canada is on that list. I live in Canada. This is not something anyone I know is losing sleep over. They may be buying gold for other reasons, but it is not for the possibility of losing their land. This HN thread is about Ray Dalio and bonds, and the sub-thread is about the S&P 500 versus gold returns, and gold returns in general. Bringing in farmland is quite the curve ball.
        eru 6y ago
        Well, Warren Buffett brought up the farmland. I'm not invested in gold, and I mostly agree with Buffett here. I just want to point out that the argument ain't watertight. (I try to be especially critical of arguments that support positions I agree with. Have to be careful not to bullshit yourself too much.) I mostly agree with the conclusions of the Dalio piece, too. But I don't agree with all the arguments. My main takeaway was to get inspired to look into how to short US bonds.
roland35 6y ago
It looks like GLD has underperformed SPY overall, with a lower Sharpe ratio (risk adjusted return). Gold did have a good run between 2010-2013 though! https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=GLD&allocation1_1=100&symbol2=SPY&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...
- eru 6y ago
  Thanks for setting that up! Though looking at the low correlation between gold and the rest of the market, it looks like you did make an argument there for gold as part of a diversified portfolio.
- dash2 6y ago
  Are SPDR GLD shares the same as real gold? I read somewhere that ETFs sometimes have to use special tricks to try and match commodity prices....
  - chaostheory 6y ago
    Even if the ETFs are completely honest, there have been bars of fake gold in circulation in the news since 2000 https://www.reuters.com/article/us-gold-swiss-fakes-exclusive-idUSKCN1VI0DD https://www.reuters.com/article/us-gold-swiss-fakes-exclusiv... https://www.celticgold.eu/en/gold-university/fake-gold-bars.html https://www.celticgold.eu/en/gold-university/fake-gold-bars....
- lorenzhs 6y ago
  When investing the same amount every month (dollar-cost averaging), the difference becomes even larger. Using your portfolios, but adding $250/month in addition to the initial investment of $10k, you end up with $128k with gold and $207k with SPY (total investment ~$85k): https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=250&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=GLD&allocation1_1=100&symbol2=SPY&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... (with QQQ, it'd be $380k) Comparing one-off investments is very dependent on the start date, and dollar-cost averaging more accurately models what people can actually do and which returns one may be able to expect. Who has a large lump sum laying around to invest rather than investing a portion of one's income every month/quarter?
runako 6y ago
This analysis appears to have been done while only looking at prices. Since a very material portion of equity returns over time comes from dividends, if you don't count reinvested dividends over such a long period you are going to end up dramatically undercounting equity returns. TL;DR; gold didn't beat the S&P 500 over the past 15 years.

zamfi 6y ago

This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)

nostromo 6y ago
Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle. 2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon. But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.
- zamfi 6y ago
  > Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle I guess it depends on your definition of amazing. If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns. Personally, I don't find that particularly amazing, but to each their own!

throw0101a 6y ago

And in six of those years (2013-2019) it was absolutely flat: * https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I. I am constantly reminded of Buffett's 2011 take: > Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? > Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. > Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. > A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. * https://www.berkshirehathaway.com/letters/2011ltr.pdf https://www.berkshirehathaway.com/letters/2011ltr.pdf Gold has not been a very useful 'investment' over the long-term: * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/ What are the expected returns of gold given that it has no earnings?

eru 6y ago
Of course, farmland might get confiscated from you. Or you might have to pay taxes on it, etc. A small amount of gold might get lost or stolen and it's usually more annoying to sell than stocks. But otherwise, you can just keep it in a sock under your pillow and be reasonably sure it's still there in a few decades.
- throw0101a 6y ago
  > Of course, farmland might get confiscated from you. In what area of the world do you live in that these scenarios are actually keeping you up at night?
  - analyte123 6y ago
    See this massive list of countries where this has occurred: https://en.m.wikipedia.org/wiki/Land_reforms_by_country https://en.m.wikipedia.org/wiki/Land_reforms_by_country This is not even to mention the prospect of “constructive” land reform, e.g. squeezing landowners (or certain disfavored types of landowners) with policy and then increasing property or income taxes to the point where they have no choice but to sell at a loss.
    - throw0101a 6y ago
      That doesn't answer my question: > In what area of the world do you live in that these scenarios are actually keeping you up at night? Canada is on that list. I live in Canada. This is not something anyone I know is losing sleep over. They may be buying gold for other reasons, but it is not for the possibility of losing their land. This HN thread is about Ray Dalio and bonds, and the sub-thread is about the S&P 500 versus gold returns, and gold returns in general. Bringing in farmland is quite the curve ball.
      - eru 6y ago
        Well, Warren Buffett brought up the farmland. I'm not invested in gold, and I mostly agree with Buffett here. I just want to point out that the argument ain't watertight. (I try to be especially critical of arguments that support positions I agree with. Have to be careful not to bullshit yourself too much.) I mostly agree with the conclusions of the Dalio piece, too. But I don't agree with all the arguments. My main takeaway was to get inspired to look into how to short US bonds.

roland35 6y ago

It looks like GLD has underperformed SPY overall, with a lower Sharpe ratio (risk adjusted return). Gold did have a good run between 2010-2013 though! https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=GLD&allocation1_1=100&symbol2=SPY&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

eru 6y ago
Thanks for setting that up! Though looking at the low correlation between gold and the rest of the market, it looks like you did make an argument there for gold as part of a diversified portfolio.
dash2 6y ago
Are SPDR GLD shares the same as real gold? I read somewhere that ETFs sometimes have to use special tricks to try and match commodity prices....
- chaostheory 6y ago
  Even if the ETFs are completely honest, there have been bars of fake gold in circulation in the news since 2000 https://www.reuters.com/article/us-gold-swiss-fakes-exclusive-idUSKCN1VI0DD https://www.reuters.com/article/us-gold-swiss-fakes-exclusiv... https://www.celticgold.eu/en/gold-university/fake-gold-bars.html https://www.celticgold.eu/en/gold-university/fake-gold-bars....
lorenzhs 6y ago
When investing the same amount every month (dollar-cost averaging), the difference becomes even larger. Using your portfolios, but adding $250/month in addition to the initial investment of $10k, you end up with $128k with gold and $207k with SPY (total investment ~$85k): https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=250&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=GLD&allocation1_1=100&symbol2=SPY&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t... (with QQQ, it'd be $380k) Comparing one-off investments is very dependent on the start date, and dollar-cost averaging more accurately models what people can actually do and which returns one may be able to expect. Who has a large lump sum laying around to invest rather than investing a portion of one's income every month/quarter?

runako 6y ago

This analysis appears to have been done while only looking at prices. Since a very material portion of equity returns over time comes from dividends, if you don't count reinvested dividends over such a long period you are going to end up dramatically undercounting equity returns. TL;DR; gold didn't beat the S&P 500 over the past 15 years.