A Golden Decade for the “Barbarous Relic”

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While gold bullion is correcting from all-time record levels in early December, US Global Investors shows the yellow metal is on track to close the decade that ends next Thursday as the top performer among the principal asset classes, thanks to an annualized return of 14.3%. Commodities (as measured by the S&P GSCI Enhanced Total Return Index) gained 13.6% per year over the period that started on January 3, 2000.

According to US Global Investors, the decade looks set to be the worst in recorded history for the US stock market – “worse than all of the many boom-and-bust cycles of the 19th century, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s. The S&P 500 Index opened the decade at 1,469.25 beginning of 2000. When the market closed on Christmas Eve, the S&P 500 stood at 1,125.46 – with four trading days left in the decade, the index’s annual performance over that span is negative at 2.6%. The Dow Jones Industrial Index has lost about 1% per year over the same period, and the Nasdaq Composite Index is down a whopping 5.9% annually. When adjusted for inflation, the ten-year returns for these indices are even lower.” However, gold stocks (as measured by the XAU Index) have had an excellent decade, climbing 9.4% annually.

A picture paints a thousand words …

Meanwhile, in the chart below, Egon von Greyerz of Matternhorn shows (via US Global Investors) just how small the precious metals market is in relation to large companies like Microsoft and Exxon. Global privately held bullion is only about three times the size of Microsoft’s value, a miniscule figure for global ownership. In total, privately held physical investment in gold makes up only 0.7% of total investable financial assets. Mr. Greyerz argues that currently the average fund manager and investor has no exposure to gold on a relative basis, but says that an increase in the allocation to gold would be supportive of the gold price in the future.

Source: US Global Investors – Weekly Investor Alert, December 24, 2009.

Time will tell what the next decade will bring for gold, but my money remains on the “barbarous relic” scaling fresh peaks in due course.

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