by Axel Merk, GoldSeek:
“Stocks beat gold in the long run!” is a ‘rallying cry’ to buy stocks we have heard lately that gets me riled up. It’s upsetting to me for two reasons: first, an out of context comparison, in my opinion, misguides investors. It might be the wrong assertion in the short to medium term.
As background, Wharton School Professor Jeremy Siegel is author of the book Stocks for the Long Run, first published in 1994. I have heard Siegel, who is also the public face of a major ETF sponsor, frequently present the bullish case for stocks. Siegel had yet another bull-speech at a recent conference, in a follow-up discussion on gold that was on the outperformance of stocks versus gold. According to Siegel’s work, stocks returned a real rate of return of 6.7% from 1802 to 2013; in comparison, gold had a real rate of return of 0.6%.
This provides the appearance that stocks beat gold hands down; assuming this is correct, why would this misguide investors? First, let’s clarify that these numbers are said to be real rates of return, not nominal rates (real rates of return are after inflation). Here is a publicly accessible chart of Siegel’s theme; note that I intentionally obfuscated the specific numbers as I have concerns with the methodology used that go beyond the scope of this analysis (they are available at this 2014 interview with Siegel):1)
Gold as a diversifier?
Keep in mind that gold is a brick, albeit a shiny one. It’s not meant to outperform stocks in the long run; the reason we use bonds and cash is not because we think they’ll outperform stocks in the long run, but because they may be valuable diversifiers.
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