Over 100 years ago, the price of gold sat at a relatively stable price of $20.67 per ounce on the open market. On November 15, 2007, the price for an ounce of gold was $793.30.
It’s important to compare apples with apples, so it’s necessary to know that the purchasing power of $1 in 1900 equivalent to about $25 in 2007. So $20.67 in 1900 would be worth about $517 in 2007. So gold has outpaced inflation, but how does it compare to other investments?
Take one simple example- the Dow Jones Industrial Average (DJIA). On January 1, 1900, the DJIA was 48.41. On November 15, 2007, the DJIA stood at 13,110.
Omitting the boring math, we find that the DJIA had an average annual gain of 5.37%, while gold had an average annual gain of 3.47%. While it doesn’t seem much at face value or for a couple of years, over 107 years the difference is astounding!
Had your great-grandfather anticipated you and invested his life savings of $1,000 in gold in 1900 to give to you in 2007, you’d be getting a check for: $38,472 (ignoring taxes). However, if he’d invested in a (then non-existent) index mutual fund containing the DJIA stocks, that $1,000 would be worth an astounding $269,600 (again ignoring taxes), or almost 10x the gold investment.
Lesson learned? While gold may be sexy, it is, when all is said and done, just an inanimate metal with no ambitions, whereas the U.S. labor market is infused with the American Dream!