Silver hour chart with falling wedge pattern

• Silver hour chart with falling wedge pattern.
• Above 25.86 bulls will get good upward momentum and may hit 26.50 and 27 in the short term.
• Below 24.98 things will turn negative again and bears will gain momentum.

Gold Weekly Technical Outlook

Gold jumped to new record high of 1424.3 last week but formed a short term top there and pulled back. Initial bias remains mildly on the downside this week for deeper fall. Though, strong support is expected at 1315.8 support, which is close to 38.2% retracement of 1155.6 to 1424.3 at 1321.7, and bring up trend resumption. On the upside, above 1395 minor resistance will flip intraday bias back to the upside. Further break of 1424.3 will target 161.8% projection of 1084.8 to 1266.5 from 1155.6 at 1449.6 next.

In the bigger picture, rise from 1155.6 is treated as the fifth wave of the five wave sequence from 1044.5, which should also be fifth wave of the rally from 681 (2008 low). Such rally is still expected to continue towards 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6 before completion. Though, we're aware of long term projection target of 100% projection of 253 to 1033.9 from 681 at 1462 and we'd anticipate strong resistance from there to bring medium term correction finally. On the downside, however, break of 1315.8 support will be an early alert of medium term reversal and will turn focus back to 1155.6 support for confirmation.

In the long term picture, rise from 681 is treated as resumption of the long term up trend from 1999 low of 253. The anticipated correction didn't happen and gold will now likely climb further to 100% projection of 253 to 1033.9 from 681 at 1462 before making a top.

Silver Weekly Technical Outlook

Silver soared to 29.34 last week but formed a short term top there and pulled back since then. Initial bias remains mildly on the downside this week for further decline to correct recent up trend. Though, strong support is expected at 24.95 cluster support (38.2% retracement of 17.735 to 29.34 at 24.907) and bring rally resumption. On the upside, decisive break of 29.34 will target 261.8 projection of 14.65 to 19.845 from 17.735 at 31.336 next.

In the bigger picture, silver's up trend is still in an acceleration phase. Current rally from 8.4 is treated as resumption of the whole rise from 2001 low of 4.01. 100% projection at 25.84 is already met. And Silver would now be targeting next key projection level at 161.8% projection of 4.01 to 21.44 from 8.4 at 36.6 level. On the downside, break of 20 psychological level is needed to signal medium term reversal. Otherwise, outlook will remain bullish.

Is the U.S. Economy So Bad It Can't Get Much Worse? - Business - The Atlantic

New and existing home sales are at drastic lows. Consumer sentiment is extremely weak. Auto sales in August hit a floor not seen in decades. The unemployment rate remains close to double-digits. It's easy to go on and on about some of the grim features of the current U.S. economy. In fact, things are so awful that you could ask: are things so bad already that they can't get much worse?
This claim was made by a Bank of America economist in a Bloomberg article on Thursday. It says:

The sectors of the economy that traditionally drive it into recession are already so depressed it's difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 30 percent below five years ago.

His point is well-taken. Some of these figures are already so brutally low that it's hard to imagine that they could sink much further. And if the economy keeps even its current sluggish pace, then the U.S. won't double dip -- it will just endure a painfully slow recovery. But is Harris right -- are things so bad that it's actually unrealistic to imagine they could get much worse?
One way to determine this would be to look at sales data. But that's not enough. There are lots of moving variables that can affect sales like population, wages, taxes, etc. So let's look at the ratio of personal consumption expenditures to personal disposable income. That should provide a good measure of how willing consumers are to spend. The ratio serves as a sort of economic comfort indicator based on the amount of the money people have they can and are spending. If the ratio is already at a very low level historically, then the thesis above is correct, and it would be very unlikely to see it fall much further.

This is a trailing three-month average of the ratio, which helps get rid of some of the noise. As you can see, consumption spending-to-disposable income has fallen recently, but still stands at 0.907 -- well above its 2009 low of 0.894. That variance might not seem like a lot, but it's a difference of $130 billion in annual spending.
So how big a change is that in terms of the entire U.S. economy? Let's imagine that consumer confidence fell further and drove spending to match that 2009 ratio low, with everything else remaining constant since the end of the second quarter. That $130 billion decline in spending would bring down GDP by 0.9%.
You may notice from the chart that there's an even deeper low that was hit in 1992, when the ratio was at 0.892. If spending dropped to that point, GDP would decline by $155 billion and GDP would drop 1.1%. Certainly, such outcomes are clearly within the realm of possibility, if consumers felt renewed uneasiness about the economy.
And what happens if GDP declines due to consumption? Businesses would sense weaker demand and would respond with additional layoffs. That would then reduce GDP even further. The dominos could continue to fall after that, pushing consumer confidence down even more.
Of course, if such a negative GDP move persisted for a few quarters, then the dreaded double dip would be upon us. So things aren't so bad that a double dip is out of the question. But even if the U.S. did double dip, considering how weak the economy is already, the dip would probably be a relatively shallow one, compared to the deep GDP declines we saw in late 2008 through early 2009.

India's Gold ETF Assets May Soar 17 Times on Refuge Demand, Executive Says

Gold held by exchange-traded funds in India, the world’s biggest buyer of bullion, may surge as much as 17 times in the next three years as investors seek a refuge from financial turmoil and inflation.

Assets may reach “100 tons to 200 metric tons” from 12 tons now, said Rajan Mehta, executive director of Benchmark Asset Management Co., which runs the nation’s first and biggest goldexchange-traded fund. “The growth will definitely be faster than what we have seen in the past.”

Investors globally bought 291.3 tons of gold in ETFs in the second quarter, the second-highest amount on record, as prices climbed to an all-time high of $1,265.30 an ounce during the sovereign-debt crisis in Europe, the producer-funded World Gold Council said on Aug. 25. London-based researcher GFMS Ltd. and Goldman Sachs Group Inc. expect gold to advance to $1,300 this year as the metal heads for a 10th straight annual gain.

India’s seven bullion-backed funds had 19.7 billion rupees ($420 million) in assets on July 30, more than double the amount a year earlier, according to the Association of Mutual Funds in India. Increased inflows may help support prices.

Investment demand for the yellow metal in India more than tripled to 92.5 tons in the six months ended June 30 from 25.4 tons, the council said.

“These are significant numbers and these are beginnings of trends that one will see and hopefully these trends will be long trends, mega trends,” Rujan Panjwani, president at Edelweiss Capital Ltd., said Aug. 27.

Popular

Exchange-traded funds have become popular worldwide since their creation in 1993 as they widened investors’ access to different type of assets. Gold ETFs allow investors to trade bullion without taking physical delivery of it.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, expanded to a record 1,320.44 tons in June, and were at 1,298.56 tons as of Aug. 27, according to the company’s website.

“Today the industry has only 12 tons, which is very small compared with volumes all over India,” Benchmark’s Mehta said in an interview in Goa. “There is a lot of room to grow.”

Benchmark’s Gold Bees had 9.85 billion rupees in assets on July 30 and has returned 19.6 percent annually since its launch in March 2007, according to its website.

Indian gold funds have gained an average 19 percent in the past 12 months, compared with a 25 percent jump in local prices, Bloomberg data show.

Futures in India reached an all-time high of 19,198 rupees ($410) per 10 grams on June 8. The metal for October delivery advanced as much as 0.2 percent to 18,928 rupees on the Multi Commodity Exchange of India in Mumbai.

“Gold has delivered good returns, so normally many advisers feel safer in advising gold as part of asset allocation,” said Mehta. “Gold as an investment theme is gaining ground.”

Gold and Deflation

I have been speaking and writing about gold’s appeal in a deflationary environment – this is a concept that opposes the conventional opinion that the gold price will not rise without inflation.

Those who cling to that singular gold-inflation relationship have not examined the history of gold as money. Whenever there is substantial inflation or deflation, governments tend to either be too slow to react or they overreact with policies, and this is typically good for gold.

Interest earned on 90-day Treasury bills below the inflation rate is a signal for governments to try to stop deflation and reflate the economy. When this happens, gold becomes attractive. We are in such an environment now.

During these periods, governments usually need to increase their deficits by escalating their borrowings to support the economy. This also supports gold as safe money in addition to its beauty as jewelry.

The twin engines of negative real interest rates and government deficits tend to make gold a very attractive investment. Recent research supports our historical findings on what drives gold.

This chart from Deutsche Bank shows that for the past four decades gold (and silver) have performed well in a country’s currency when that country has low or negative real interest rates.

The Federal Reserve’s main interest rate is near zero and inflation is a little over 1 percent, so we now find ourselves in a negative real interest rate situation. The Fed has made it clear that it has no plans to tighten money by raising that key rate any time soon because of the sluggish economy and soft housing market (mortgages are now at a 21-year low), so this condition is likely to endure.

“The decline in core inflation from 2.5 percent two years ago to under 1 percent today will sustain market fears of deflation and hence a more rapid depreciation of the U.S. dollar to arrest any deflationary pressures,” Deutsche Bank’s analysts wrote. “We believe that the road map to resolve deflation is therefore bearish for the U.S. dollar and another factor which will propel gold prices to new highs.”

The Fed this week plotted part of that road map – it said it will pump more money into the system to try to kick up economic activity. As the 2010 midterm election draws closer, there is also a growing call for another round of stimulus spending to try to pull down the 9.5 percent unemployment rate.

Such a move would widen the federal budget deficit, which is already estimated at nearly $1.5 trillion for this year and will roughly be the same in 2011. The U.S. dollar is not only our currency, it is also the world’s reserve currency. Deficit spending puts downward pressure on the dollar, and when the dollar falls, investors tend to turn to gold.

When you add the interest rate and deficit scenarios to the gold seasonality trend – September is historically the best month of the year for both bullion and gold equities – the conditions now appear promising for gold.

Gold Readies For A Major Price Thrust To $1,325-$1,375 This Fall

This is the time for real action by real men. Instead we have a bunch of stupid, wimpy, inexperienced, academic children playing with matches and gasoline. There is zero leadership, so get ready to run.

Technically, weekly gold is supported at $1,207 and capped at $1,265, (chart below) the former recent high price. However, by using more elaborate and technical charts (not shown) we find the new gold support on December, 2010, gold futures to be $1,175. Seasonally, gold should sell mildly once more to that projected number and then rebound in a new fall rally taking prices much higher.

Other more dominant market forces in bond credit and international stock markets could create unmeasured mayhem depending upon the ability of central bankers to keep things under control. These people are riding a bucking bronco and we think they are about to get tossed-off this horse. If in fact this occurs, our $1,325-$1,375 gold forecast could just be a door-opening beginning.

There is really no way to measure Black Swans, particularly when a whole flock is now flying in large formation. It only takes one slip like the Long Term Capital (LTC) multi-billions mistake back in the 1990’s. That mess scared the wits out of a lot of people as the Big Black Nasty Bird was an unexpected failure in Russian Bonds. This time the stakes are much higher on several fronts. No one can tell me Chopper Ben and Timmy “The Kid” Geithner really have a grip on this mess.

This markets’ dilemma is an impossible dream. The manipulators still have tools and they will do anything legal or illegal (Witness Former Treasury Secretary, Hank Paulson’s TARP Robbery) to keep it all glued together with bubble gum and bailing wire.

As we have said so many times, when the bond markets renounce Chopper Ben’s bond Games, it’s all over. In our view, we are very near to that date but of course cannot pin-point it exactly and neither can anyone else. As they say, this is when the rubber meets the road. This is the time for real action by real men. Instead we have a bunch of stupid, wimpy, inexperienced academic children playing with matches and gasoline. There is zero leadership, so get ready to run.

Be very careful in any stock or bond market. We like physical gold and silver, select senior and junior precious metal shares, very specific property locations (by nation) and top flight management. Further, they better not be under any severe pressure to raise more operating capital in this weird credit environment.

For trading, we are recommending gold and silver spreads, grain, and certain other futures and options spreads. For the primary stock market there are several select choices among more than one country for going short and staying short. Remember, it can take weeks or months climbing up the hill on the long side. But, coming down on the short side it’s many times faster and much more exciting.

To put it bluntly, we think bonds of all kinds just stink. Can they be traded, you bet. However, you better be a very fast screen watcher with your hand on the mouse to avoid getting ripped. We think this kind of trading is for the pros and there are easier ways to earn money without a heart attack.

Watch out for faster markets, more volatility and surprises in all directions. One example: We think the Euro is a goner but China is shedding US Dollars for Euros. Obviously, they think the Euro is safer than the dollar for now. We think the opposite is true but the Chinese own way too much US currency, bonds and bills.

Both gold and precious metals shares (XAU) are squeezed in triangles. Before price hits the triangles’ apex, we suggest they both break-out through top channel line resistance and take-off in new fall rallies from the end of this month to nearly Thanksgiving. After that holiday, expect even more buying after a normal, technical, profit-taking pullback.

Note the end of summer gold rallies just before the “O’s” for October many years in a row.

What ever happens to foreign economies, credit and banking along with the American vote in November… could be a major turning point in world affairs affecting all citizens world-wide. This is a generational changing series of events. It might be prolonged but we think not. Prepare for several smashes and crashes from later in this month of August through nasty springs and falls all the way to 2012 when I predict World War III begins over energy, economics and settlement of several old grudges; some of them being 5,000 years old.

The US Dollar and American standard of living shall be cut in half over the next few years.

Now, more than ever, it is important to take the immediate necessary precautions to protect yourself and your families and friends. Traders and investors should be buying precious metals and select shares right now. In our newsletter we have a great list of trading and investing ideas for you. Meanwhile, you can never go wrong buying physical precious metals and holding them for security. We’ve had a constant run of nearly ten years in gold rising 15% per year so this remains a good trade. In the last twelve months, gold rallied over 34% and is going ever faster.

It’s not going to stop any time soon. In fact, we predict those annual percentages will rise even more and this offers a chance, arriving only once in 25 years on the historical cycles. Good trading! -Traderrog

Gold : Many New Highs for the Year

This month’s jump up in precious metals, resources and oil reinforces that the lows in February were likely the lows for the downward correction.

For now, the second quarter is off to a good start. The fact that gold’s decline was mild (down 13½%) is saying that the underlying bull market is strong and solid. You should now have your positions bought and in place, waiting for the bull market to further unfold.

Platinum and palladium have been strong, reaching new highs and they seem to be leading gold, silver and the metals shares in another leg up in the bull market. In fact, the new highs in many commodities reinforces this.

BIG PICTURE INVESTING BEST

Many of you know the importance we place on the big picture. The big picture is most important, and knowing where the mega and major trends lie is a key to good investing.

Our main goal has always been to invest in the major trends and to stay with them. We can’t stress this enough because over the years we have found that more money can be made this way, rather than trading the intermediate moves.

Sometimes trading works well and when it does, it’s great. But unless you’re prepared to devote a lot of time to trading, or follow the advice of a good, professional trader, then it’s easy to make mistakes. This usually happens when an investor becomes too emotionally involved.

Most frustrating is that a major move can be missed because you’re too busy trading a correction. And remember, the major moves are where your focus should be. They’re the most profitable.

The latest downward correction in the gold price provides a good example of what we mean. We called this a ‘D’ decline and they tend to be steep.

Since 2001, these recurring D declines have ranged from a loss of about 7% to nearly 30%. The November to February correction lost 13½%. This was moderate compared to the last two D declines in 2006 and 2008, which were down 22.16% and 29.80%, respectively, and were the steepest so far (see Chart 1A).

We always receive many letters regarding our leading indicators and this is one of our favorites (Chart 1B). We know that gold’s major trend is up, meaning it’s headed higher. But within this uptrend there are intermediate ups and downs, and this indicator works well in identifying these ebbs and flows within gold’s bull market.

Currently, for instance, the gold price and the leading indicators are starting to rise. This tells us that a renewed rise is beginning. But if you were waiting for further gold weakness before buying more, then the market is slipping away and you’re already missing out on part of the renewed strength.

This is why it’s best to buy during weakness when possible, but not to try and get the low. Averaging in during weakness is the ideal way to buy, and a big picture approach makes it easier to just jump in and buy at any time.

For now, gold looks ready to spring forward. Considering that just six months ago, the $1000 level was a super break out point and today it’s a major support level illustrates how gold’s slow and steady rise has been gaining momentum.

The gold price has broken above all resistance and the last remaining one is the November closing high at $1218. Once $1218 is surpassed, gold could jump up to the $1300 level before this intermediate rise is over.

GOLD’S POTENTIAL

This means that the bull market remains very strong, even though gold’s already been rising for nine years. Chart 2 shows gold’s big picture since 1967 when it began to move in the free market.

Here you can see an interesting pattern that’s been going on since 1969. Note that each major eight year low was followed by a major peak 11 years later. The only exception was the 1993 low, but in that case the low was mild within an essentially quiet market (see asterisk).

If this 11 year pattern continues, we could see gold shoot up to the $2000-$3000 level within the next two years. But since today’s economic situation is historically extreme, we could see much higher prices for a longer period of time… well beyond 2012, and more like 2017-2018.

This is precisely what we mean by staying with the major trend. It’s powerful right now and we’ll stay with it for as long as it lasts.

The Five Reasons Gold Will Hit $5,000

In 2001, gold traded as low as $255 an ounce. Within eight years, its price had quadrupled to more than $1,100 an ounce. How many investors thought that was possible, or even likely? Probably not very many.

Yet, it happened.

What's more, since hitting its secular bottom back in 2001, gold has posted a positive return in every calendar year. So far, the current bull market has been pretty orderly.

During the past 10 years, gold has indeed become the trade of the decade, beating out commodities, oil, high-grade U.S. corporate bonds, U.S. Treasuries, and yes, U.S. stocks.

A crisp $100 bill invested 10 years ago would today be worth more than $400 in gold, $357 in commodities (as measured by the S&P GSCI Enhanced Total Return Index), $268 in oil, $190 in corporate bonds or U.S. Treasuries, and only $90 in U.S. stocks.

That's right: We're talking about a $10 loss in U.S. stocks over 10 years. Ouch.

Meanwhile, gold has embarked upon a secular upward trend that is far from over. If the 1970's are any indication, gold's going much, much higher from here.

When U.S. President Richard M. Nixon opted to close the gold window in August 1971, the yellow metal had already risen from its fixed price of $35 an ounce to $42 an ounce. By the time gold peaked in 1980, it had risen to $850, rewarding early investors with a 2,400% return. My guess is that any such forecast in 1970 would probably have been met with the same kind of ridicule I expect that my current projection could attract.

Granted, there's no guarantee that we're about to duplicate the 1970s. (I could certainly do without the disco, bell bottoms and leisure suits). But a s Mark Twain once noted: "History does not repeat itself, but it often rhymes."

And that could mean even sweeter returns for gold investors this time around.

In fact, let's crunch a few numbers - just for fun.

Why $5,000 an Ounce Gold Isn't Out of Bounds

To start with, let's take the 1980 peak price of gold - $850 - and adjust it for inflation. That would take the price of gold to $2,400 in present-day terms.

Better still, let's take the 2,400% gain that gold experienced during the 1970s and translate it into present-day terms. From the 2001 low of $255 an ounce, a 2,400% gain would take the yellow metal all the way up to $6,120 an ounce, making my $5,000 price projection seem a lot more reasonable.

But these are just superficial price comparisons. If we look at what the fundamentals are telling us, it's clear that gold at $1,100 is a long way from its eventual peak, meaning it still appears cheap.

So let's take a closer look.

Five Fundamental Reasons Gold Will Soar

Gold Fundamental No. 1: You Can't Ignore Inflation: The 2008 stock market panic sent stock and commodity prices - including the price of oil - into a tailspin. And that launched the big debate about whether inflation or deflation would ultimately carry the day. Keep in mind that since 2001 - under benign price inflation of roughly 2.5% - gold has managed to rise about 400%. Meanwhile, the U.S. Federal Reserve is widely expected to keep short-term rates near zero through this year, leaving the door open for rampant inflation.

Meanwhile, quantitative easing to shorten the recession has caused America's monetary base to explode. Starting in October 2008, during a very short span of only four months, the central bank doubled the U.S. money supply, going way beyond anything ever attempted in the nation's history.

Worldwide, central banks have rolled out an unprecedented $12 trillion worth of stimulus programs, with most of the money still to be spent.

Make no mistake, inflation will win out over deflation.

Gold Fundamental No. 2: Investment Demand is Exploding: Large institutional investors - hedge funds and pension funds - are making large allocations to gold, as are individual investors.

The proliferation of gold-focused exchange-traded funds (ETFs) bears this out. The SPDR Gold Trust (NYSE: GLD), the world's largest physically backed ETF with 1,100 tons of the lustrous metal, is the sixth-largest holder of gold bullion. Individual investors have never had an easier avenue for owning gold.

This isn't just merely a U.S. manifestation. According to the World Gold Council, demand advanced 15% from the second quarter to the third last year.

Asia, with a population that exceeds 2.5 billion inhabitants and a long-standing cultural affinity for gold, is stoking global demand in a big way. China is overtly encouraging its citizens to buy gold and silver, while offering them gold-linked checking accounts. China is primed to overtake India as the world's largest consumer of gold. A quickly developing middle class whose members are experiencing rapid escalations in disposable income are a major bullish driver for the price of gold.

Gold Fundamental No. 3: Central Banks are Becoming Net Buyers: India's recent purchase of 200 tons of International Monetary Fund (IMF) gold was the likely impetus that pushed gold up over the $1,200 level in December. But more important is the sea change that has seen central banks morph from net sellers into net buyers of gold. BlackRock Inc. (NYSE: BLK), one of the world's largest investment managers, said that 2009 was that turning point. If that was the case, it will have been the first time in 20 years, as central banks have been net sellers of gold since 1988.

Gold Fundamental No. 4: A Currency Crisis is Looming: The "PIGS" - Portugal, Italy, Greece and Spain (or "PIIGS," if you want to include Ireland) - aren't in very good fiscal shape. And they aren't alone. Iceland has already gone over the edge. The United States, the United Kingdom, and countless other economies are struggling. And that reality has ignited a crisis of confidence about fiat currencies in the minds of many investors. Money is nothing more than paper and ink, backed by the full faith and credit of the issuer. When investors find that their faith in the issuer is shaken, the value of that currency erodes. Additional sovereign-debt downgrades from ratings agencies are but one potential trigger of a currency crisis. Under such conditions, gold - the ultimate store of value, and the oldest existing form of money on earth - will soar as investors seek to protect their purchasing power.

Gold Fundamental No. 5: We've Yet to Reach the Mania Stage: As we've outlined before, the gold bubble that takes prices to all-time-record levels will inflate in three distinct stages. This process will start with currency devaluations in Stage One, will be fueled by growing investment demand in Stage Two and will experience its stratospheric ascent in Stage Three, the mania phase of this evolution.

Make no mistake, the $5,000 price point will most likely be reached in this third and final phase. The price of gold will behave like it is strapped to a jet pack. And today's market prices will be dwarfed by the levels gold prices will ultimately achieve.

Keep in mind, the entire gold industry has an aggregate market capitalization (value) below that of Wal-Mart Stores Inc. (NYSE: WMT) alone (currently about $210 billion). So as the crowd piles in, the "big money" to be made will lie with gold explorers and producers, where 1,000% returns will not be uncommon, even from today's prices.

All these fundamentals underscore that gold prices have plenty of room to run from here.

And since I expect gold will eventually reach the $5,000 range, that leaves plenty of room for investors to profit by entering at current levels.

It's Time to Make Your Move

Everyone needs some exposure to gold in their portfolios, no matter their age or risk tolerance. Owning some physical coins or bars makes sense, but it's complicated to do inside most retirement accounts.

That's why the explorers and producers of the gold sector promise the biggest payoffs. Although production costs will rise, as gold prices rise, profit margins are sure to expand even faster. Once cocktail-party conversations turn to gold, for any one of the reasons I've outlined, gold stocks will erupt and then streak for record highs.

When will this happen? I think it will take a few years. But with bubbles, or speculative frenzies, one never knows. Just this week, in fact, Robert R. McEwen, the chairman and chief executive officer of U.S Gold Corp. (AMEX: UXG), predicted that gold could more than quadruple to hit the $5,000 level by 2012. Some experts have labeled this expected move as a looming "superspike."

When this happens, gold is likely to create a whole new generation of millionaires, and even a few new billionaires. Despite the mania stage being several years away, the wise investor recognizes both the importance and the potential of investing in gold.

I have no doubt that today's $1,100 gold price level will eventually, in hindsight, look like an outrageous bargain.

My advice: If you own gold and gold shares, hang onto them and buy more on dips. If you don't, what on earth are you waiting for?

The Golden Decade

The decade that ends Thursday is on track to be the worst in recorded history for the U.S. stock market – worse than all of the many boom-and-bust cycles of the 19th century, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s.

The S&P 500 opened the decade at 1,469.25 on January 3, 2000. When the market closed on Christmas Eve, the S&P 500 stood at 1,125.46 – with four trading days left in the decade, the index’s annual performance over that span is negative 2.6 percent. The Dow Jones Industrials has lost about 1 percent per year over the same period, and the Nasdaq Composite is down a whopping 5.9 percent annually. When adjusted for inflation, the 10-year returns for these indices are even lower.

Meanwhile, what about gold?

The chart above from Bloomberg tells the story – a $100 investment in gold when the market opened on January 3, 2000, was worth about $380 as of this week (data through December 21) – that’s a total return of 280 percent and an annualized return of 14.3 percent. Gold stocks (as measured by the XAU Index) have also had a good decade, climbing 9.4 percent annually.

Commodities (as measured by the S&P GSCI Enhanced Total Return Index) posted average gains of 13.6 percent per year over the period, driven mostly by rapid economic growth in Asia and elsewhere in the developing world.

There are many commentators out there who see no value in gold and who denounce it as an investment at every opportunity. They are certainly entitled to their opinions, but it’s hard to argue with the numbers over the past 10 years – investors on average would have been better off with a gold allocation than having no exposure.

We consider gold a legitimate asset class, and for that reason, we consistently suggest that investors consider a maximum 10 percent allocation to gold-related assets – half in bullion or bullion ETFs and the other half in gold equities – and that they rebalance each year to capture the swings.

What the next decade will bring for gold? Who knows. But we do know one thing – those who held gold for the past 10 years will have a happier New Year than those who listened to the perma-skeptics.