I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Tuesday, December 8, 2009

Gold/USD/SPX Performance, Multiple Timeframes

There have been a lot of posts on blogs, and Caps, and I believe a Bloomberg article showing something to the effect that if you bought gold at the peak in 1980, you would only be up 100% so far, but down on your investment for almost 30 years.

An interesting but ultimately pointless "analysis". Wait, this deserves more sarcasm. """"analysis"""" (quadruple quoted).

Why? Because it assumes that you saved up all your money, bought precisely at the peak, and have done nothing with it since. You didn't have any stops in place. You didn't average down. You basically didn't do anything that normal investors would do.

The same argument can be applied to buying anything at a top and making a likewise comparison.

So a much more nuanced picture would be to show there performance of gold, compared to say the USD and SPX in 5 year increments, which is what I do below:

Since 1980

Since 1985

Since 1990

Since 1995

Since 2000

Since 2005

So what are a few conclusions?

Obviously if you bought gold in 1980 and did nothing else you would have a profit only recently. But as you look through time, stocks tend to outperform, and then gold tends to outperform.

It means that there are always times when an investment is good or when one is bad to get into.

But it really means, to understand an issue, you need to look at it in multiple ways and multiple timeframes. An analysis that looks at only a tiny portion of data points does nobody any good.
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