June 27, 2103
Gold and Silver make poor investments over long periods of time? Why?
Gold and Silver make poor investments over long periods of time? Why?
They have relatively poor historical yearly returns and they have barely beat inflation over the last 80 plus years. Also, the last 10 years or so have been very good, but they will be heading back to their historical returns over time (reversion to the mean).
I have always viewed gold as store of value, rather than an investment. Although there is evidence toward strong returns in the short-term, there is contradicting evidence toward strong negative returns.
Using Katherine’s answer as a hypothesis (and being a bit bored), I tested the annual returns on gold against the NYSE Composite Index for the years 1972-2012. Below are some fun facts.
The geometric average return on the NYSE is 6.74%. Gold’s return is 8.72%. *Looks promising*
Annual standard deviation on the NYSE is 17.07%. Gold’s standard deviation is 27.98%. *There’s the risk-reward trade-off*
To analyze these numbers, one could say the numbers are biased as gold prices were relatively stable prior to these years. As Katherine mentioned, they barely beat inflation and in this case barely beat the market for the risk assumed.
The covariance of the returns on the market is 2.53. Gold’s is 3.21. This means that for every unit of return, you assume this many units of risk. A more risk-averse investor will steer clear of the higher covariance of gold.
To sum, although recent returns look attractive, they are not indicative of future returns.
Plenty of good information you two. Let’s recap. Gold and Silver are usually purchased as some type of hedge against inflation/world calamity. There is no evidence they achieve their goals. The stock market (S & P 500) has trounced gold over long periods of time AND the roughly 2% yearly dividend is something you will never see with the purchase of gold and silver (they provide no income).
Gold and Silver are used to feed a person’s greed and fear. They accomplish that part well. As for an investment that will provide long-term results, they stink. Stay away. Stay far away.