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Has Gold Been A Good Investment Over The Long Term?
FYI: When evaluating the performance of gold as an investment over the long term, it really depends on how long a term one is considering. Over a 45-year period, gold has outperformed stocks and bonds; over a 30-year period, stocks and bonds have outperformed gold; and over a 15-year period, gold has outperformed stocks and bonds. Regards, Ted http://www.investopedia.com/ask/answers/020915/has-gold-been-good-investment-over-long-term.asp?partner=YahooSA
Gold, they dig it up in Africa, or somewhere, mold it into bars, or coins or jewelry, you buy it and bury it in your "safe Deposit Box" to hold for sometime, to see if someone is dumber than you and pay more for it? to use for what? bitcoins? or barter or what? I give....
If you're willing to go back thousands of years, the rate of return must be minuscule -- way, way under 1% annualized.
You must be looking at Jeremy Siegel's Stocks For The Long Run. There he shows inflation adjusted Total Real Return Indexes 1802-1997. $1 invested in gold worth 84 cents!!!! $1 invested in stocks worth $558,965!!!!!
When gold was allowed to trade freely in the 70s it immediately ran up to 100 to 200. I recall trading it in the futures markets in the 200s. Then it ran up to over $800. So that is why I am so biased against gold. From its peak in late 79/early 80 above $800 what has it done??? Silver is even worse when it hit 50 in April 1980 when the Hunts cornered the market. Since seemingly my entire lifetime all I have heard from the gold and silver bugs is how there is a shortage and you better hoard all you can.
I think the answer depends on one's definition of investment. For me, gold is a collectible just like any other perceived treasure. Let's say I put a $100 bar of gold and a $100 US paper bill in a can and bury it out in the back yard for 20 years. When I dig up the can to redeem the contents the $100 bill might buy me half of what it did 20 years earlier due to inflation while the $100 bar of gold will most likely buy me the same suit and loaf of bread it would have when I buried it. Does that make it an investment? Decide for yourself. I just like looking at the panda's and koala's.
I think the answer depends on one's definition of investment. For me, gold is a collectible just like any other perceived treasure. Let's say I put a $100 bar of gold and a $100 US paper bill in a can and bury it out in the back yard for 20 years. When I dig up the can to redeem the contents the $100 bill might buy me half of what it did 20 years earlier due to inflation while the $100 bar of gold will most likely buy me the same suit and loaf of bread it would have when I buried it. Does that make it an investment? Decide for yourself. I just like looking at the panda's and koala's.
Agree, but what about $100 in equities? Will check back with you in 20 years on that one.
The point isn't about what material things are worth at some future point in time. The point is are they considered to be investments. Each owner might have their own opinion on the matter.
Owned a few 1-oz K-Rands in the mid 80s. Beautiful coins. Had a slight reddish hue. I understand they add a bit of copper to harden them (unlike many other gold coins), as gold's a soft metal. Aesthetic value is very difficult to calculate and is in the eyes of the beholder. However, when you add-in the aesthetic value enjoyed in addition to the likely capital appreciation over time, I think it's a reasonable investment. I don't like the safety/security issues associated with such physical investments (assaying, storing, insuring, transporting, selling, etc.) Hell, I won't even wear a watch worth more than $25 in some locations I frequent. And than there's the ever present threat of government prohibition, restriction or regulation. For those reasons, we don't invest in physical pms or collectibles.
As far as owning the metal on paper, pms are just about the "rockiest" markets you can find. Prices are erratic and unpredictable. My experience is that it's a lot easier to lose money than to make money with them. I do own a small slice of PRPFX for diversity. The fund holds some gold and pms. That fund is one odd mix of assets, and I gravitate towards the "odd-man-out" type of investment for the sake of diversity (much to the chagrin of some formidable voices here).
There's a natural human tendancy to view the world through our own time-lense and to assume things will always remain the same. Based on most of our experience since around the mid 80s, equities appear the best alternative. Had you been investing in the 70s and early 80s you would likely have been looking more to hard assets as a safe haven or, believe it or not, at plain old cash. It was easy in the late 70's to pull in 15-20% annually simply by investing in money market funds. Who'd run the risk of buying equities with those types of returns on cash? Better be careful not to overlook bonds. Since long-term interest rates have been declining now for about 35 years, bonds have been great investments over that period. (Note to beginners: Interest rates do not always decline.)
I'd agree with another distinguished poster here that gold & commodities are not "winning" long term investments when held up against either equities or corporate bonds. The last two are growth-oriented and increase in value as the world's economies grow and prosper. Gold, on the other hand, tends to track both inflation and investor sentiment. (One component of that sentiment relates to perceived value of various paper currencies.) Since sentiment is difficult to define and quantitify, this probably accounts much for gold's erratic performance.
While these assets (gold, precious metals, plus commodities) are currently out of favor I recently opened positions in them and plan to grow the positions over time. I am up in my gold fund and down in my commodity fund as I write. When combined the gain in the gold fund more than covers the current loss of the commodity fund ... thus, score me net up.
You must be looking at Jeremy Siegel's Stocks For The Long Run. There he shows inflation adjusted Total Real Return Indexes 1802-1997. $1 invested in gold worth 84 cents!!!! $1 invested in stocks worth $558,965!!!!!
I do have that book, so it probably has influenced me. What i was thinking of specifically though is what seems to be called "The Parable of Joseph's Penny" wherein a single penny at compound interest of 1% becomes something like $4.5 Million, and at 2 pecent compounded becomes worth more than all the assets in the world. If an ounce gold was worth anything at all 2,000 years ago (and it certainly was), then the 12 or 13 hundred dollars you can get for it must represent a truly minuscule annualized rate of return.
On a similar note, one can take an ordinary piece of paper, tear it in half and put the pieces one on top of the other, tear it in half again......repeating this process only 50 times, and one will have a stack of paper that will rise way beyond the moon. Try it sometime! It is great fun
@Junkster - I hope we're both around in 20 years to compare the results. Pick your equities. You must be specific. For example, you can't say the S&P 500 because that changes over time. Unless the paper bill deteriorates both it and the gold bar will be the same as the day they went in the can. We will not be doing any adjustments inflationary or otherwise. $100 today in each of these items will be worth what in 20 years? Could be fun.
Lastly, do remember, I said that I view gold strictly as a collectible however right or wrong that view may be.
@Junkster - I hope we're both around in 20 years to compare the results. Pick your equities. You must be specific. For example, you can't say the S&P 500 because that changes over time. Unless the paper bill deteriorates both it and the gold bar will be the same as the day they went in the can. We will not be doing any adjustments inflationary or otherwise. $100 today in each of these items will be worth what in 20 years? Could be fun.
Lastly, do remember, I said that I view gold strictly as a collectible however right or wrong that view may be.
And maybe an incentive to live another 20 years. I am the least qualified person to select individual equities for the long run. So why not use VTSMX which pretty much covers the full spectrum of the stock market. Not only has that beaten gold the past 20 years but so has the mundane Merrill Lynch High Yield Master II Index (junk bonds) beaten gold. With stocks near all time highs and gold way off, you may begin with a bit of an advantage. So let's see.
I hate gold with a passion (silver even more) I will always remember gold above 800 in late 79 early 80 and silver at $50 an ounce in April 1980 and think they are both terrible investments, collectibles or whatever. So let's throw in that other dog silver in the 20 year contest with gold and VTSMX. Maybe I will have to eat my words in 20 years assuming I can even still eat by that age and don't have to be spoon fed. I will use tonight's closing prices as my basis
Junkster, no. Using anything that can be changed defeats the point. You see a painting valued today at $100 won't be changed down the road. It'll still be the same painting. However someone may value it differently at the end of that road from worthless to illogical multiples of what it's value was to begin with, something it shares with the perceived value of gold or silver. As an investment that's not a chance I want to take with a precious mineral or similar. Equities on the other hand, well the mind reels.
No desire to become an apologist for gold - or any other investment. I've already stated that equities and corporate bonds are better alternatives over very long time frames. I do believe, however, that all investments have their "season". And to argue that gold is never useful to some in hedging portfolio risk is akin to arguing that short-selling of equities or holding cash (even at near 0 rates) can never be useful. The latter two are recognized ways for some to hedge the aggressive sides of a balanced portfolio. To that extent, gold may play a role.
More clarity as to the nature of "Bills" on Siegel's chart would be appreciated. It's likely a reference to T-Bills. My understanding is that these come in varying maturities. The 91-day T-Bill rate is often quoted, but 1-year T-Bills are available. I wouldn't (purposely) post data with as ambiguous a nomenclature as Siegel's reference to "Bills".
Regarding investing in T-Bills, it's hard for me to understand how they would have approached gold's return through appreciation during the post-2000 time-frame. Let's take a look. In 2000 gold was selling for $280 per Troy Ounce. This morning it's quoted at $1230. That works out to a compounded annual return of better than 10% over that 15-year span. I don't know what the 1-year T-Bill has returned over 15 years, but it's probably considerably less.
hank, maybe this will assist you. From Siegel's book, latest edition. Looks like a read of Chapter 5 might clarify things for you even more. Hope this helps.
"Asset Returns Since 1802 Figure 1-1 is the most important chart in this book. It traces year by year how real (after-inflation) wealth has accumulated for a hypothetical investor who put a dollar in (1) stocks, (2) long-term government bonds, (3) U.S. Treasury bills, (4) gold, and (5) U.S. currency over the last two centuries. These returns are called total real returns and include income distributed from the investment (if any) plus capital gains or losses, all measured in constant purchasing power."
...................."The real return on fixed-income investments has averaged far less; on long-term government bonds the average real return has been 3.6 percent per year and on short-term bonds only 2.7 percent per year."
hank, note that the 3.6% and 2.7% correspond to the bonds and bills in his chart.
"The average real return on gold has been only 0.7 percent per year. In the long run, gold prices have remained just ahead of the inflation rate, but little more. The dollar has lost, on average, 1.4 percent per year of purchasing power since 1802, but it has depreciated at a significantly faster rate since World War II. In Chapter 5 we examine the details of these return series and see how they are constructed."
hank, regarding your comment: "Regarding investing in T-Bills, it's hard for me to understand how they would have approached gold's return through appreciation during the post-2000 time-frame"
I agree with you. From 2001 to 2011 gold had superb performance, and I'm sure Treasury bills did not even come remotely close. Siegel's data is the really long term......from 1802 thru 2012. He never suggested that there were not time periods of 10, 15, 20, 25 years, etc, where the results were not significantly different.
Take gold for example: it lost 90% of its purchasing power, that is to say, real return, from 1980 until it bottomed, somewhere around 2001. Even on a nominal basis it lost 70% (not taking inflation into account). Then from 2001 till 2011 it was probably the very best performing asset class, far better than stocks, bonds, "bills" [Treasury bills], etc.
I see gold pretty much the way I always have - as a security blanket. Hell, I didn't even play gold before 2002 . . . and I have collected coins for over 50 years AND played silver since the Hunt Bros. It wasn't fun, nor profitable. However, when the bull woke up back in 2001/2002, it was the kinghellbastard momentum play. Geez, it was just back up the truck and roll back in a multi-orgasmic state if bliss. Hopefully, some of you played along.
That said, when the music's over, it's over. The outsized profits in the pm's are long past. That's OK. Eventually, they'll come again . . . but it may be 50 years.
I guess I'll stay with what I've been saying for some 10 years or so - everyone should have some small percentage of their wealth in pm's, preferably physical, hands on stuff. I like to use 3-7% as a guide, but it's really up to you. More than this is fine, but now you're speculating. Speculation is fine so long as you know what is afoot.
Some 5% or is like the bed buddies, my grand kids still have. It helps them sleep at night.
I do not wish to read Mr. Siegel's book. However, I'd consider it condescending for anyone to suggest that, not having read the book, I'm unfit to offer some constructive comments on the question under discussion.
(1) Since you are familiar with Siegel's book, do you have any reason why a supposedly scholarly undertaking like this fails to identify on its central chart which T-Bill maturity the plot-line reflects? The difference would be small. But I'd have more confidence in his numbers if I knew the methodology employed to reach them.
(2) I think we agree that gold is not an attractive long term investment.
(3) I think we also agree that over shorter periods (such as the referenced 15 year time-span) gold does sometimes perform quite well against some other investments.
I'm not sure we disagree on anything of substance here. I do feel the chart as presented exhibits sloppy scholarship for its omission of which T-Bill maturity was used in the calculation, But, that's my subjective judgment. Others can form their own opinion.
@rjb112 (1) Since you are familiar with Siegel's book, do you have any reason why a supposedly scholarly undertaking like this fails to identify on its central chart which T-Bill maturity the plot-line reflects? The difference would be small. But I'd have more confidence in his numbers if I knew the methodology employed to reach them.
(2) I think we agree that gold is not an attractive long term investment.
(3) I think we also agree that over shorter periods (such as the referenced 15 year time-span) gold does sometimes perform quite well when compared against some other investments. I'm not sure we disagree on anything of substance here.
hank, I don't know the answer to your question in (1). I strongly suspect the answer to which Treasury Bills were used will be found in Chapter 5, where he says, "In Chapter 5 we examine the details of these return series and see how they are constructed."
I don't have the time nor inclination to read that chapter. I don't own the book, but have it available thru the public library e-book series.
I agree with you when you say "The difference would be small." Since he refers to short term bonds as having the 2.7% annualized real return, he is equating the Treasury Bills he used for the chart to short term bonds. Perhaps he used one year T-bills? I have no idea, and agree with you that it would be much better to have that stated outright. I would also like to see the bonds identified....such as 30-year Treasury bonds, and even the stocks identified. That's where I'm guessing Chapter 5 comes into play.
I agree with your (2) and (3) above........certainly over the past 210 years, gold has been a terrible investment, but also, nobody has lived 210 years to hold it that long and achieve that terrible return. So if you bought gold in January of 2001 and sold it in 2011, you did fabulously. If you bought gold in 1980 at over $800/ounce and sold it in 2000 or 2001 at under $300/ounce, you did terribly.
All these things, including small cap value stocks, large cap growth, value stocks versus growth stocks, foreign stocks vs. US stocks, emerging market stocks, etc etc......are quite time period dependent. Large cap growth did great from 1995-2000, then did terrible, while small cap value did great starting 2000.........
Actually, I don't think we disagree on anything here.
And I'm not against gold.
Some of my favorite investors have invested in gold, such as Jean Marie Eveillard, the late Peter Bernstein, William (Bill) Bernstein, and others. I think Buffett may have even invested in gold or silver at one time. And John Templeton I'm pretty sure bought silver at one time.
And you don't have to look at gold as something you invest in to hit a home run with respect to total return. Many invest in it as an insurance policy against bad outcomes.
A long-term owner of gold here. I think the question asked is wrong.
AU is not an investment -- good or bad. Its insurance. What is the rate of return on homeowner's insurance to someone who never files a claim? (hint: its a negative number, as cash only goes out, and does not come) Does that make homeowner's insurance something to be avoided? In a precise sense, purchasing insurance is not "investing", its an outlay, an expense. In return for the outlay, you are obtain protection for an asset.
AU is similar. You decide on an appropriate allocation, you incur an outlay. The difference being, with AU (unlike homeowner's insurance) after several years of holding it, you can decide to liquidate it and get (some portion of) your money back. Try doing that with your H/O insurance premiums....
As to dryflower's comment about a miniscule ROR on AU over 'thousands of years'... First, my investment horizon is not that long. Second, directly to D/F's point, if you were WERE sitting (for example) in pharoanic Egypt circa 1500 B.C., or 200 B.C Carthage, and invested in loans to the pharoah (i.e. Treasurys), fertile farm acreage and tenement apartments (real estate) , or the local camel merchant (equity ownership in commercial enterprises, i.e. 'stocks') ...then here come the Romans, they kill the camels, topple the govt, set fire to your buildings (real estate) and seize the lands (or in Carthage's case, 'seed' the land with salt to make it unusable). What is the ROR on THOSE investments once title has been seized or property destroyed? (hint, if your equity in an asset goes to $0, its gone, forever.)
The camel merchant who sold his camels the day before the Romans landed, could easily hide the proceeds from that sale (gold coins), throw them a bags, walk them out into the desert somewhere, bury them by night (perhaps in sundry locations, to thwart burglars, and come back in a year or two, and his AU and wealth intact. Still not impressed? Fair enough, but what is the ROR (or current value) on an IOU from the last, deposed sovereign of Carthage? --- 10 years before he was deposed, all Carthaginians assumed the sovereign's IOU was AAA-rated...
The above story is tongue-in-cheek, but meant to get the point across about AU being insurance, not an investment. AU, because of its inherent attributes (universally desirable -- among all cultures past and present, relative scarceness, indestructability, portability) makes it a unique diversifier against the potential ravagings of conventional investment assets, WTSHTF.
We all may lucky enough to NOT experience a "Mega Black Swan" event. And our houses may never burn down. [I also have stocks, and bonds (in far greater value than my AU -- so please don't consider me a 'gold bug', any more than I am a 'stock bug' or a 'bond bug'. ]
Like Henry Walton Jones Jr, I am "a cautious fellow". I renew my H/O insurance each year and I hold some AU. I consider neither to be "investments"; I consider having some of both prudent.
Comments
I give....
84 cents!!!! $1 invested in stocks worth $558,965!!!!!
When gold was allowed to trade freely in the 70s it immediately ran up to 100 to 200.
I recall trading it in the futures markets in the 200s. Then it ran up to over $800. So that is why I am so biased against gold. From its peak in late 79/early 80 above $800 what has it done??? Silver is even worse when it hit 50 in April 1980 when the Hunts cornered the market. Since seemingly my entire lifetime all I have heard from the gold and silver bugs is how there is a shortage and you better hoard all you can.
http://www.digitaltrends.com/cars/one-rare-super-snake-appears-40-years-dust/
The point isn't about what material things are worth at some future point in time. The point is are they considered to be investments. Each owner might have their own opinion on the matter.
As far as owning the metal on paper, pms are just about the "rockiest" markets you can find. Prices are erratic and unpredictable. My experience is that it's a lot easier to lose money than to make money with them. I do own a small slice of PRPFX for diversity. The fund holds some gold and pms. That fund is one odd mix of assets, and I gravitate towards the "odd-man-out" type of investment for the sake of diversity (much to the chagrin of some formidable voices here).
There's a natural human tendancy to view the world through our own time-lense and to assume things will always remain the same. Based on most of our experience since around the mid 80s, equities appear the best alternative. Had you been investing in the 70s and early 80s you would likely have been looking more to hard assets as a safe haven or, believe it or not, at plain old cash. It was easy in the late 70's to pull in 15-20% annually simply by investing in money market funds. Who'd run the risk of buying equities with those types of returns on cash? Better be careful not to overlook bonds. Since long-term interest rates have been declining now for about 35 years, bonds have been great investments over that period. (Note to beginners: Interest rates do not always decline.)
I'd agree with another distinguished poster here that gold & commodities are not "winning" long term investments when held up against either equities or corporate bonds. The last two are growth-oriented and increase in value as the world's economies grow and prosper. Gold, on the other hand, tends to track both inflation and investor sentiment. (One component of that sentiment relates to perceived value of various paper currencies.) Since sentiment is difficult to define and quantitify, this probably accounts much for gold's erratic performance.
While these assets (gold, precious metals, plus commodities) are currently out of favor I recently opened positions in them and plan to grow the positions over time. I am up in my gold fund and down in my commodity fund as I write. When combined the gain in the gold fund more than covers the current loss of the commodity fund ... thus, score me net up.
Old_Skeet
On a similar note, one can take an ordinary piece of paper, tear it in half and put the pieces one on top of the other, tear it in half again......repeating this process only 50 times, and one will have a stack of paper that will rise way beyond the moon. Try it sometime! It is great fun
dryflower
Lastly, do remember, I said that I view gold strictly as a collectible however right or wrong that view may be.
And maybe an incentive to live another 20 years. I am the least qualified person to select individual equities for the long run. So why not use VTSMX which pretty much covers the full spectrum of the stock market. Not only has that beaten gold the past 20 years but so has the mundane Merrill Lynch High Yield Master II Index (junk bonds) beaten gold. With stocks near all time highs and gold way off, you may begin with a bit of an advantage. So let's see.
I hate gold with a passion (silver even more) I will always remember gold above 800 in late 79 early 80 and silver at $50 an ounce in April 1980 and think they are both terrible investments, collectibles or whatever. So let's throw in that other dog silver in the 20 year contest with gold and VTSMX. Maybe I will have to eat my words in 20 years assuming I can even still eat by that age and don't have to be spoon fed. I will use tonight's closing prices as my basis
From Jeremy Siegel, Stocks for the Long Run, latest edition
but investors will ......anyway
More clarity as to the nature of "Bills" on Siegel's chart would be appreciated. It's likely a reference to T-Bills. My understanding is that these come in varying maturities. The 91-day T-Bill rate is often quoted, but 1-year T-Bills are available. I wouldn't (purposely) post data with as ambiguous a nomenclature as Siegel's reference to "Bills".
Regarding investing in T-Bills, it's hard for me to understand how they would have approached gold's return through appreciation during the post-2000 time-frame. Let's take a look. In 2000 gold was selling for $280 per Troy Ounce. This morning it's quoted at $1230. That works out to a compounded annual return of better than 10% over that 15-year span. I don't know what the 1-year T-Bill has returned over 15 years, but it's probably considerably less.
Gold Price Chart: http://www.nma.org/pdf/gold/his_gold_prices.pdf
"Asset Returns Since 1802
Figure 1-1 is the most important chart in this book. It traces year by year how real (after-inflation) wealth has accumulated for a hypothetical investor who put a dollar in (1) stocks, (2) long-term government bonds, (3) U.S. Treasury bills, (4) gold, and (5) U.S. currency over the last two centuries. These returns are called total real returns and include income distributed from the investment (if any) plus capital gains or losses, all measured in constant purchasing power."
...................."The real return on fixed-income investments has averaged far less; on long-term government bonds the average real return has been 3.6 percent per year and on short-term bonds only 2.7 percent per year."
hank, note that the 3.6% and 2.7% correspond to the bonds and bills in his chart.
"The average real return on gold has been only 0.7 percent per year. In the long run, gold prices have remained just ahead of the inflation rate, but little more. The dollar has lost, on average, 1.4 percent per year of purchasing power since 1802, but it has depreciated at a significantly faster rate since World War II. In Chapter 5 we examine the details of these return series and see how they are constructed."
hank, regarding your comment: "Regarding investing in T-Bills, it's hard for me to understand how they would have approached gold's return through appreciation during the post-2000 time-frame"
I agree with you. From 2001 to 2011 gold had superb performance, and I'm sure Treasury bills did not even come remotely close. Siegel's data is the really long term......from 1802 thru 2012. He never suggested that there were not time periods of 10, 15, 20, 25 years, etc, where the results were not significantly different.
Take gold for example: it lost 90% of its purchasing power, that is to say, real return, from 1980 until it bottomed, somewhere around 2001. Even on a nominal basis it lost 70% (not taking inflation into account). Then from 2001 till 2011 it was probably the very best performing asset class, far better than stocks, bonds, "bills" [Treasury bills], etc.
Happy Investing
http://www.wsj.com/articles/SB124725925791924871
Wow. Interesting discussion.
I see gold pretty much the way I always have - as a security blanket. Hell, I didn't even play gold before 2002 . . . and I have collected coins for over 50 years AND played silver since the Hunt Bros. It wasn't fun, nor profitable. However, when the bull woke up back in 2001/2002, it was the kinghellbastard momentum play. Geez, it was just back up the truck and roll back in a multi-orgasmic state if bliss. Hopefully, some of you played along.
That said, when the music's over, it's over. The outsized profits in the pm's are long past. That's OK. Eventually, they'll come again . . . but it may be 50 years.
I guess I'll stay with what I've been saying for some 10 years or so - everyone should have some small percentage of their wealth in pm's, preferably physical, hands on stuff. I like to use 3-7% as a guide, but it's really up to you. More than this is fine, but now you're speculating. Speculation is fine so long as you know what is afoot.
Some 5% or is like the bed buddies, my grand kids still have. It helps them sleep at night.
My wee staff of pm's helps me sleep at night.
and so it goes,
peace,
rono
I do not wish to read Mr. Siegel's book. However, I'd consider it condescending for anyone to suggest that, not having read the book, I'm unfit to offer some constructive comments on the question under discussion.
(1) Since you are familiar with Siegel's book, do you have any reason why a supposedly scholarly undertaking like this fails to identify on its central chart which T-Bill maturity the plot-line reflects? The difference would be small. But I'd have more confidence in his numbers if I knew the methodology employed to reach them.
(2) I think we agree that gold is not an attractive long term investment.
(3) I think we also agree that over shorter periods (such as the referenced 15 year time-span) gold does sometimes perform quite well against some other investments.
I'm not sure we disagree on anything of substance here. I do feel the chart as presented exhibits sloppy scholarship for its omission of which T-Bill maturity was used in the calculation, But, that's my subjective judgment. Others can form their own opinion.
I don't have the time nor inclination to read that chapter. I don't own the book, but have it available thru the public library e-book series.
I agree with you when you say "The difference would be small." Since he refers to short term bonds as having the 2.7% annualized real return, he is equating the Treasury Bills he used for the chart to short term bonds. Perhaps he used one year T-bills? I have no idea, and agree with you that it would be much better to have that stated outright. I would also like to see the bonds identified....such as 30-year Treasury bonds, and even the stocks identified. That's where I'm guessing Chapter 5 comes into play.
I agree with your (2) and (3) above........certainly over the past 210 years, gold has been a terrible investment, but also, nobody has lived 210 years to hold it that long and achieve that terrible return. So if you bought gold in January of 2001 and sold it in 2011, you did fabulously. If you bought gold in 1980 at over $800/ounce and sold it in 2000 or 2001 at under $300/ounce, you did terribly.
All these things, including small cap value stocks, large cap growth, value stocks versus growth stocks, foreign stocks vs. US stocks, emerging market stocks, etc etc......are quite time period dependent. Large cap growth did great from 1995-2000, then did terrible, while small cap value did great starting 2000.........
Actually, I don't think we disagree on anything here.
And I'm not against gold.
Some of my favorite investors have invested in gold, such as Jean Marie Eveillard, the late Peter Bernstein, William (Bill) Bernstein, and others. I think Buffett may have even invested in gold or silver at one time. And John Templeton I'm pretty sure bought silver at one time.
And you don't have to look at gold as something you invest in to hit a home run with respect to total return. Many invest in it as an insurance policy against bad outcomes.
take care
AU is not an investment -- good or bad. Its insurance. What is the rate of return on homeowner's insurance to someone who never files a claim? (hint: its a negative number, as cash only goes out, and does not come) Does that make homeowner's insurance something to be avoided? In a precise sense, purchasing insurance is not "investing", its an outlay, an expense. In return for the outlay, you are obtain protection for an asset.
AU is similar. You decide on an appropriate allocation, you incur an outlay. The difference being, with AU (unlike homeowner's insurance) after several years of holding it, you can decide to liquidate it and get (some portion of) your money back. Try doing that with your H/O insurance premiums....
As to dryflower's comment about a miniscule ROR on AU over 'thousands of years'... First, my investment horizon is not that long. Second, directly to D/F's point, if you were WERE sitting (for example) in pharoanic Egypt circa 1500 B.C., or 200 B.C Carthage, and invested in loans to the pharoah (i.e. Treasurys), fertile farm acreage and tenement apartments (real estate) , or the local camel merchant (equity ownership in commercial enterprises, i.e. 'stocks') ...then here come the Romans, they kill the camels, topple the govt, set fire to your buildings (real estate) and seize the lands (or in Carthage's case, 'seed' the land with salt to make it unusable).
What is the ROR on THOSE investments once title has been seized or property destroyed? (hint, if your equity in an asset goes to $0, its gone, forever.)
The camel merchant who sold his camels the day before the Romans landed, could easily hide the proceeds from that sale (gold coins), throw them a bags, walk them out into the desert somewhere, bury them by night (perhaps in sundry locations, to thwart burglars, and come back in a year or two, and his AU and wealth intact. Still not impressed? Fair enough, but what is the ROR (or current value) on an IOU from the last, deposed sovereign of Carthage? --- 10 years before he was deposed, all Carthaginians assumed the sovereign's IOU was AAA-rated...
The above story is tongue-in-cheek, but meant to get the point across about AU being insurance, not an investment. AU, because of its inherent attributes (universally desirable -- among all cultures past and present, relative scarceness, indestructability, portability) makes it a unique diversifier against the potential ravagings of conventional investment assets, WTSHTF.
We all may lucky enough to NOT experience a "Mega Black Swan" event. And our houses may never burn down. [I also have stocks, and bonds (in far greater value than my AU -- so please don't consider me a 'gold bug', any more than I am a 'stock bug' or a 'bond bug'. ]
Like Henry Walton Jones Jr, I am "a cautious fellow". I renew my H/O insurance each year and I hold some AU. I consider neither to be "investments"; I consider having some of both prudent.