Wednesday, January 7, 2009

Fun with Gold

Update: These ARE NOT charts of cumulative or relative return. They simply show how many ounces of gold were required to buy the S&P 500 or a home at each point in time against how much the S&P 500 or a home cost in dollars. The post doesn't say the word 'return' once and for any snap shot of cost at any point in time, rental earnings, dividends, or opportunity cost are irrelevant.

So, we all know housing and equity markets have been hit hard after many years of gains... in dollars that is. How would each market look in terms of the hardest of currencies... gold (note that October dates were used as that is the last Case-Shiller print and the long-term trend is what I was looking for).

The housing market is interesting. From 1987-1997 the housing market went nowhere in dollars, but started to see the beginning signs of the boom, in gold, beginning in 1997. From 1998-2005, we saw a bubble form in both dollars and gold, but that's where we see a huge divergence. Gold rallied hard starting in 2005, "predicting" the fall. It now takes roughly the same amount of gold to buy a home as it did back in 1997... dollars are another thing altogether.

The equity market is even more interesting (to me). Since 1994, the S&P 500 has roughly doubled in dollars. In gold, the market has gone... well nowhere.