The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 57

Long-Term Gold Holders Get the Cold Shoulder

If you want to hedge against inflation, your best bet is gold, right? Hardly! Eyeball the next chart and match it to some others in this book. You'll see it differently—quickly.

At first glance, gold looks like a winner. We've just come through one of the worst inflationary cycles in history. In the decade of 1970–1980 alone, consumer prices more than doubled. Yet gold skyrocketed 2,400 percent (from $35 to $850 per ounce). That's an average compounded rate of 37 percent annually. It's no wonder scared money sees a lot of glitter in gold.

But the broader history of gold prices shows less sparkle. Dramatic surges in gold prices are few and far between; only three major peaks appear in 200 years—one during the Civil War, another after the Arab oil embargo, and the third during the double-digit inflation of 1980. Making matters worse, each of these three big bull markets lasted a brief 3.7 years on average, which means that over the 200 years, someone seeking an inflation hedge suffered 190 years of patient and profitless waiting.

What's the upshot? The long-term evidence suggests that gold does not provide to great returns. Looking at the entire 200-year span from 1781 to 1981, gold appreciated at a paltry 1.58 percent per year. The appreciation to gold's peak in 1980 was only marginally better at 1.9 percent. How would you like to bank your retirement on that? Consider a more recent period, say, the 55 years from 1926 to 1981. ...