This morning I saw a Bloomberg report of a survey the company among users of its terminals (presumably sophisticated investors), asking people what they think is the best investment to protect their money from inflation. The #1 choice, made by close to half the respondents, was gold; #2 was large-cap NASDAQ tech stocks.
Both are very odd answers, especially for professionals. The numbers tell us why:
past ten years
CPI +32%
IBM (the biggest name of yesteryear) +7%
gold +67%
ORCL (another (former) ghost stock) +150%
S&P 500 +187%
Nasdaq +300%.
past 25 years
CPI +71%
IBM (same old, same old) +56%
ORCL (reinventing itself) +170%
S&P 500 +286%
NASDAQ +552%
gold +670%*
*Gold needs a footnote. During the 1980s, gold lost 85% of its value. The starting point for the quarter-century calculation made for this post is pretty much the lowest point of that decline. Hence, the huge gain. Looked at another way, gold has yet to achieve its $2600/oz level of early 1980, 40+ years ago.
Two other things:
–the gold peak in late 1979 coincided with a downturn in base metals. So every big miner began developing gold mines, leading to widespread overcapacity. I don’t see why the same thing can’t happen again
–there’s a terrible Hong Kong joke that I heard in the 1980s about the mandarin fleeing from Shanghai to Hong Kong after WWII with a fortune in gold and jewels sewn into his garments. He falls off the boat. A cruel way of saying that storage and transport are significant issues with precious metals and jewels.
what surprised me
Again, two things:
–why take the risk of owning a few of today’s stars rather than an index? Yes, you might pick a Nvidia or ARM. But you might also end up holding an IBM or Oracle …or even a DEC, now-defunct
–a huge percentage of finance professionals responding think that holding gold is the best hedge against inflation. How can this be? You don’t even have to know anything about the gold standard or about the mining business. Just looking at a chart shows you how risky a bet this is, even assuming you solve the storage problem.