Gold vs. The Market. Ounce For Ounce, The Last Decade Was a Draw


I used to be a big fan of gold.  I admitted as much in my article Confessions of a Recovering Gold Bug.  Why wouldn’t I be?  Humans have been captivated with gold since history began.

I’m not so much anymore.  At least not from an investment standpoint.  I still like it for jewelry and collecting coins and Olympic metals and things like that.  But I’ve decided not to invest at all in the yellow metal for retirement or any kind of savings.

When you compare the performance of gold to the stock market (represented here by the S&P 500 Index) over the last decade, it seems like I’m making a mistake:


Gold appears to crush The Market, even after its dramatic drop from a peak of nearly $1900/oz in 2011.  Gold bugs love to point this out.  Was I wrong to turn my back on gold?  Should I get back in?  After all, gold is now way off its highs.  It should have room to run.

It looks tempting, right?  But how would I have done in real life if I had chosen one investment over the other back in 2006 and just let it ride?  For the record, I didn’t choose either.  I just made stupid stock picks like  But, let’s not dwell.  Let’s have a little fun and crunch some numbers instead.

An ounce of gold or a slice of the market

I’m a small-time player.  I would’ve been lucky to afford even one ounce of gold back in 2006.  So, let’s go with that.  I either buy one ounce of gold or I buy whatever that same amount can get me in the stock market.

The year is 2006.  28-year-old Adam Goldbug trots down to his favorite coin shop in boot-cut jeans to buy himself a slab of gold bullion.

Hi, Mr. Dealer.  I’ll take a 1 oz American Eagle, please,  Adam Goldbug says.  And can you waive the sales tax?  Future Adam wants to keep taxes from confusing his numbers.

Sure thing.  But I’m still charging you 5% over spot, the dealer says.

On September 11, 2006, gold was $588/oz, according to Kitco.  Add a 5% fee and Adam Goldbug pays $617.40 for a shiny new 1 oz American Eagle.  He puts the coin in the front pocket of his boot cut jeans and forgets all about it.

Meanwhile, in a parallel universe at the exact same time 28-year-old Adam Boglehead has just found an extra $617.40 in the front pocket of his boot-cut jeans and he’s determined to invest all of it wisely.  He logs into his online brokerage account.  There’s a $6.95 fee to buy stocks, which will eat into his windfall a bit.  But it seems reasonable enough.

With the remaining $610.45, Adam Boglehead is able to buy exactly 9.501 shares of the Vanguard Total Market ETF (VTI) at the split-adjusted price of $64.25.  He prints out the receipt, folds it up and puts it in the back pocket of his boot-cut jeans and forgets all about it.

A decade passes.  Much more quickly than either Adam Goldbug or Adam Boglehead thought it would.  They both wake up on September 9, 2016.  They’ve got nothing to wear.

I don’t have anything to wear, Adam Goldbug says.

Nothing in this closet looks good on me, Adam Boglehead says.

Flipping through piles of forgotten clothes, they each pull out a pair of tattered and worn boot-cut jeans.

Adam Goldbug fishes through the pockets of his boot-cut jeans and finds a shiny, gold 1 oz American Eagle.  Excited, he runs down to his favorite coin shop and plunks the coin down on the counter.

How much will you give me for this?

It’s your lucky day, says the coin dealer.  I’ll give you 5% below spot.  $1330.85 minus $66.54. I’ll give you $1,264.31.

Meanwhile, Adam Boglehead fishes through the pockets of his boot-cut jeans and finds a folded and faded printed receipt.  Excited, he runs to his computer and logs into his old brokerage account.

Adam Boglehead is surprised to see that his original 9.501 shares of VTI have turned into 11.583 shares because of 10 years of quarterly dividends that were automatically reinvested into the stock.  The VTI share price is now $109.65.  He’s able to sell his shares for $1270.08.  Minus the $6.95 brokerage fee, Adam Boglehead clears $1,263.13.


Remember the first chart?  Remember how gold crushed the S&P 500 over the last decade?  This chart from our “real life” example tell a different story.

While gold sat pretty, VTI shares left untouched in Adam Boglehead’s account kept spinning off dividends to the tune of about 1.87% per year.  That, along with the high fees involved in buying small amounts of physical gold, helped VTI almost completely close that gigantic gap with gold.

What initially looked like a clear win for gold after an outstanding decade of gains, turned out to be a virtual tie in our “real life” example.  This little exercise shows the power of a productive asset.  At least it does to me.  I’ll continue to favor investing in the stock market over gold.

Bonus Myth-Bust

I was putzing around on Pinterest the other day trying to figure the place out.  Apparently, it’s the next greatest social media platform and bloggers are using it to drive tons of traffic to their sites, so I thought I’d check it out myself.

I was looking for investing info to “pin” to one of my boards, when I came across an info-graphic on gold.  As a recovering gold bug, I’m instantly drawn to stuff on gold.  One part of this graphic really caught my attention.  It went something like this:


Whah?  I knew gold had done well the last decade even with the recent drop, but outperforming Google, one of the stock market’s greatest recent success stories?  I had to myth-bust this claim.

Just like I thought.  The numbers above may be roughly true, but they’re cherry-picked and misleading.  First, gold never really got down to $400/oz in 2005.  The lowest it got was $411.  Second, Google hit $400 (split adjusted) late in 2005.  Gold got close to $400 much earlier that year.  They’re not even comparing the same time frame.

Here’s the whole story, a graph of Google’s performance versus gold from Google’s 2004 IPO until now:


By 2005, Google had already almost quadrupled since it’s IPO a year earlier, so using 2005 as a starting point for a comparison is suspect.  Since it came public, Google returned more than 900% by the end 2013.  In that same period, gold returned just over 200%.  As you can see, Google has continued to rocket higher and widen the gap against gold.

I get it, Google was chosen for this gold-biased info-graphic for its shock value.  And they chose the section of the chart that gave gold the advantage over a high-flying stock that everyone recognizes.  They picked the wrong stock, though.  The fact is, Google handily beats gold.

I am not an investment advisor.  These are my opinions.  Please do your own research before investing in any asset.  

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    • Thanks, Mustard (can I call you Mustard?). I was actually surprised when VTI came out almost exactly even with gold in my example, considering the kind of decade gold has had. I’m glad you liked the article. Thanks for reading!

      Liked by 1 person

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