Due to our incredible tendency toward myopia, it’s easy to lose sight of the big picture. For instance, anyone who’s paid attention knows that gold dropped rather hard earlier in the year. Also, the S&P 500, though it’s had some tough stops, has had a pretty good year. The dollar is at highs it hasn’t seen in a while, offering Americans more opportunity internationally than they’ve enjoyed in a while (if they actually have any dollars to spend).
Most of us don’t keep in mind that the S&P lost 50% of its 2007 highs within a year and a half. Perhaps you remember in mid-2011 when the dollar was about 10% stronger than it is today. But who remembers $300 gold; or $500; or even $1000?
The charts we have today are to help bring things into perspective. And I have to admit, I was a bit surprised when I saw them. We often look at values in a sort of absolute sense, keeping track of them in our head. But when we chart things certain ways it can often break through our perceptions and offer a more complete and accurate picture.
If we go back five years we’ll find the dollar just a few pennies below today’s values. The S&P, however, was about 10% higher. And gold? Well, it’s simply a whole different story. Priced in dollars, gold is currently up over 150% in the past five years.
With this in mind, where do you think your investments would have served you best through the challenges of the 2008 shakeup? Actually, the greatest gains were dollars and gold, probably about even as we reached the end of the year. But after that, it’s no contest. Gold has outperformed every major market and every currency. And the recent strength in light of a rising dollar tells us we’re not done.
If the S&P fell 500 points again, how would your stock portfolio be? Losing one-third of your value is tough. Better to be in dollars. But if the dollar loses 10-15% again, how will you be? While gold could lose another 10% if the markets retract, it’s countertrend with the dollar during economic downturns should continue to serve to provide greater stability overall.
Many expect a severe market correction in the next couple of months, based on technical analysis. They might be right. And many of these same people expect gold to take a hit during that time. Again, they might be right. But it is evident that gold’s trend is up. And it seems we can expect more of the same, at least for the foreseeable future.
For your prosperity,
J. Keith Johnson
The Gold Informant