Is Investing In Real Gold Better Than The Stock Market?

Making a long term investment for your financial future is a big decision. There are so many options available, each with their own talked-up benefits and selling points, that it can be hard to make a decision on which option is really the best. Precious metals and stocks are two of the most appealing investment options today. Investing in the stock market is a common practice for Americans. Stocks have a reputation for being a risky but potentially rewarding way of making gains on an investment, with a relatively low entry-barrier. Gold, on the other hand, has a reputation as an eternally prized but exotic form of investment. Let’s put preconceptions aside and find out which is actually better for returns.

What’s the Difference?

The main thing that separates gold from the traditional U.S. stock is that gold is a physical commodity with a value and a price. Gold has value because it is a physical thing that fulfills human needs, and its price reflects the rarity of gold and its use in the market. Stocks, on the other hand, are equities that grant partial ownership of an issuing company. The price of a stock is tied to the perceived success or failure of a company, but since they’re things that don’t exist in the physical world, they have no real value.

Because gold is a commodity, its price is tied to the supply and demand in the market. Gold is a relatively rare commodity with many prized qualities. Gold is prized by jewelers, indispensable for computer components, useful in medical procedures, and famous for its near universal history as currency. Gold’s value has ensured that its price has always been high, making it very resistant to the effects of inflation and economic recessions. This is one of the top reasons to own gold.

Stocks, as equities, grant partial ownership of a company. The price of a share is tied directly to how much a company is worth. Since a company’s worth is dependent on highly unpredictable factors, such as the availability of resources, the competence of leadership, and public perception, stock prices are notoriously risky gambles against the odds. This gamble can pay off remarkably, but it can also result in a total loss.

Precious Metals Vs. Stocks

The stock market as a whole has historically outperformed precious metal investments, but there’s more to this story than meets the eye. Recent events have turned the tables, and both gold and silver are outperforming the Dow Jones Industrial Average. Lets take a closer look at how gold has performed compared to the stock market.

The DJIA opened on January 2000 at 11,700, and twelve years later it closed at 12,874. This is a 10% return over a 12 year period. Historically, the DIJA has had an average 5% return per-year! Including dividends, an investment made in 2000 would return about 18% in the year 2012. Put into numbers, if an investor had put in $10,000, they would have $11,800 twelve years later. This is not enough to overcome losses to inflation.

Gold is a different story altogether. In 2000, gold was about $282 an ounce, and in 2012 it was $1,720 an ounce. That is a return of 510%, a massive gain! If an investor put $10,000 into gold in 2000, they would have $51,000 in 2012. This return on investment is above and beyond all but the most successful stock options on the market. When it comes to a battle of precious metals vs. stocks, gold is the heavy hitting winner. One of the top reasons to own gold today is the massive return on investment that it is producing for investors today; 510% can’t be beaten by risky stock market gambles.