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Though the river of gold market analysis runs wide and deep on the Internet, precious little of that content is devoted directly to the most basic rationale for gold ownership. Here we fill that void in chart form – a quick reference for the first-time investor.
Chart 1 presents a quick overview of gold's annual rate of return from 2001 through 2014. An investment of $100,000 made in 2001 would have a market value today just under $440,000 even with the market correction of the past two years taken into account. The average annual return over the period was just over 12%. By comparison, stocks over the same period (at the 18,000 level for the Dow Jones Industrial Average), averaged a return of just under 4% annually. The 12% annualized return in a no yield environment represented a phenomenal return.
Chart 2 is a magnification of Chart 1. It shows gold's annual gain over the same month in the previous year. Its most telling features are the spikes running concurrent to times of economic and financial stress. One lesson to be drawn from this chart is that the best time to buy gold is when everything is quiet, and the market is declining or running sideways. The largest year over year gains – in some cases 60% to 70% – were realized when gold was purchased on the downslopes. These spikes were accompanied by heavy physical gold demand both in the United States and abroad with national mints and refiners running 24-hour schedules to keep up with coin and bullion demand.
