The performance of Gold bullion is often compared to stocks. They are fundamentally different asset classes: gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil [Source: Investments (7th Ed) by Bodie, Kane and Marcus, P.570-571]. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system. This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The ratio peaked on January 14th, 2000 a value of 41.3 and has fallen sharply since. William Anton III wrote in the 2004 issue of Jefferson Coin and Bullion "...downward movement in the Dow/gold ratio is unlikely to stop precisely at the mean trendline. The extreme distension of the the 90s will likely overshoot to the opposite extreme in the current cycle." Source: Source: [10] [11] [12] [13]
In November 2005, Rick Munarriz of Motley Fool.com posed the question of which represented a better investment, a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment commuity and is serving to crystalize the broader debate. Source: [14] [15](wiki)
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