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Gold Performance

22 May 2006

      Abstract: For the period 21 May 1999 to 22 May 2006, holding gold was 19 times better than holding cash in a passbook savings account. Holding stocks that exactly modeled the Dow Jones Industrials would have gained you 2.7% on your money. Holding gold would have gained you 141% on your money. Holding silver would have gained you 140% on your money. Holding cash in a passbook savings account would have gained you 7.38% on your money. Holding gold or silver was about 51 times better than holding Dow stocks from May 1999 to May 2006.

Gold and silver are presently good ways to hold cash. In fact, for the last seven calendar years, you would have been much better off holding your cash in gold or silver rather than in a passbook savings account. Similarly, you would have done better investing in gold or silver than in a stock portfolio modeling the Dow Jones Industrial average.

Gold and silver have both appreciated in value. In both cases, their appreciation has been greater than the consumer price index (CPI) as reported by the USA government. Naturally, here at The Indomitus Report we are exceedingly skeptical of any information reported by any externally imposed, coercive government authority.

Given the enormous lies reflected in the Gulf of Tonkin incident that got the USA into an escalating ground war in South Vietnam, the secret bombings in Cambodia revealed in the Pentagon papers, Watergate, Iran-Contra, Ruby Ridge, Mt. Carmel, Lewinsky, weapons of mass destruction in Iraq, the lies exposed by Aaron Russo's new film "America: Freedom to Fascism, Volume One," about the income tax and the Federal Reserve system, there is zero credibility for any pretend statistics about consumer price inflation. Had USA government policies kept the coinage silver in 1965 and the dollar redeemable for gold past 1971, one might be able to give some benefit of the doubt. Given debasement and abrogation of Bretton Woods, no doubt is available: the USA government tells lies.

Of course, gold and silver have a notable seasonality, with the Summer being a period of doldrums for the price of each commodity. As we enter that time of limited appreciation, it is well to take a somewhat longer view. No doubt, whatever period we choose, we'd get different results. There's no guarantee that future results are going to model past results. In fact, there's some reason to expect both gold and silver to appreciate dramatically in the coming period of hyperinflation, should that materialize. For this calculation, we arbitrarily chose 22 May 2006 and looked at the values on that day or the closest business day for which we could find figures going back to 1999 - again arbitrarily chosen.

Let's take a look at the calculations. First, with respect to the Dow Jones Industrials, the figure we have for 21 May 1999 is 10829.28. The figure for 22 May 2006 is 11125.32. The gain for this seven-year period is about 2.7%.

In other words, if you invested $1000 in a stock portfolio which subsequently modeled the performance of the Dow Jones Industrials, that thousand dollars would now be worth $1027.34. These figures are given exclusive of any commissions or fees involved. (For those who dislike our selection of dates, we suggest you try 22 May 2000 or 22 May 2001 instead.) Simply put, investing in Dow stocks would not have kept up with government-published inflation. Fees or commissions would likely have eliminated any gain should you have chosen to sell your position for cash.

For gold, the calculation and several intervening prices are shown below. The gold price on 21 May 1999 was $272.50. The price per ounce troy on 22 May 2006 was $657.10. (The price peaked about ten days earlier at $728.) So, an investment of $1000 on the first date would have brought in 3.67 ounces of gold. This amount of gold was worth $ 2,411.56 on 22 May 2006. You'd have more value holding the same amount of gold, by over 141%. (Again, without regard to any fees or commissions you'd pay to acquire or to sell the gold.)

In the case of silver, the price per ounce was $5.19 on 21 May 1999 and grew to $12.46 on 22 May 2006 (again, not the peak price for that month, by far). One thousand dollars would have bought 192.68 ounces troy of silver, which was worth $2,400.79 on 22 May 2006. A nice 140% improvement.

For passbook savings accounts, our first instinct was to model the interest rates we were able to find for the years 1999 to 2006 using an annual compounding. To more closely model the "compounded monthly" offer of most bank savings accounts, we used the rates indicated for each year divided by twelve to model the monthly increase. These calculations are shown in the third table below. Either way, the performance of gold is about 19 times better than a passbook savings account.

Indeed, since savings account rates are typically much less than the rate of inflation the real or inflation-adjusted value of such an investment is almost always negative. For this calculation, we researched available web sites for passbook savings interest rates for the indicated years. Since interest rates are adjusted several times a year, a more accurate calculation would be possible if we had access to detailed historical savings rates. Rates for interest bearing checking accounts and money market accounts would be different, but the difference is not great enough to suggest either would be better than gold or silver.

Is it always this way? No, of course not. The period beginning in January 1980 and ending in 1986 would not have produced the same result. To the contrary, gold would have been a poor way to hold cash in that period.

As a general rule, when stocks are increasing dramatically, gold and silver don't perform as well. When stocks are performing poorly, as in the period of our example here, gold and silver perform very well. There are a number of techniques for evaluating the timing of such investments. One approach that we found particularly useful is the Fear Index devised by James Turk and discussed in the commentary section of his GoldMoney.com site as well as in his Free Market Gold and Money Report.

Sadly, the Fear Index is no longer available. The Federal Reserve System has stopped publishing the M3 money supply figure. So, we'll never know how much they are inflating the money supply, now. Indeed, it is this sort of bizarre behavior that makes it clear the Federal Reserve cannot be trusted.

In his comments on the Asian currency crisis in 1997, then-Fed chairman Alan Greenspan called for more openness and transparency by central banks in Asia. In 1998, the Fed ordered the broadest figure of liquidity, L, to be silenced. It has not been published since.

To further illustrate the hypocrisy of Greenspan's call for transparency, in March 2006, his sucessor Ben Bernanke demanded that M3 be silenced. With the two broadest figures on money supply growth now gone dark, can M2 be far behind? What sort of filthy mongrels print money and won't even admit how much they've printed? The kind who would, in Bernanke's own words, print money by the container load and dump it from helicopters over the major cities if they felt like it.

If you are interested in buying gold and silver, we suggest you consider two sources. The Liberty Dollar is an excellent organization for gold and silver in digital or paper warehouse receipts or specie. If you want some of their currency, or GoldMoney, e-gold, Pecunix, or other gold currencies, we recommend Vertoro.

More importantly, if you want to protect yourself from hyperinflation, you need the consultants and financial planners of Vertoro. They can show you how to write contracts using gold or silver rather than dollars, so the value of the contract is not determined by the Federal Reserve open market committee. They can show you how to add gold and silver to your IRA or 401k, how to plan for hyperinflation, how to invest in gold mining stocks, and how to profit from the dollar's collapse. As well, their programmers and web designers can help revitalize your business by bringing customers from the digital gold economy.

We've said it before. Gold and silver are going much higher. We'll say it again. Holding cash or Dow stocks is not your best move. Hold gold or silver, instead. When the inflationary war foreign policy and the inflationary deficit trade policy and the inflationary government benefits policy and the inflationary national debt policy and the inflationary monetary policy meet up - when these waves of inflation are magnified by each other - you don't want to be holding a pile of cash. You don't want to be holding a basket of Dow stocks. You don't want to be holding a banker's deposit slip when the FDIC is relying on a bankrupt government to bail out bankrupt banks.

For eight thousand years or more, people have used gold and silver, the archaeologists tell us. Whenever the market has been free to choose its own money, it has chosen gold and silver. The Federal Reserve and the other central banks are newcomers on the scene. Their inflationary fiat paper money is a temporary aberration. It won't last because it isn't real.

My friend Doug Casey of CaseyResearch.com quotes Aristotle in describing the virtues of good money. Money should be convenient, consistent, durable, divisible, and intrinsically valuable. Gold and silver have those virtues. Fiat paper money does not. Gold and silver are, therefore, real money. Government promises are not worth much when the government keeps lying to you. And the Federal Reserve Note isn't even a government promise of gold or silver. As Doug says, it is an IOU nothing. He notes the Canadian dollar is not backed by gold any longer, but by the USA dollar. And the EU euro? It is a "who owes you nothing?" he suggests.

Many decades ago, Poul Anderson wrote that one should not put one's trust in governments. Governments are mayflies. They don't last. Government policies change. Government practices become more corrupt. Gold and silver, however, are real money. They have served us well for thousands of years.

Get real. Get gold. Get silver.


Gold (Au)

Silver (Ag)

passbook

21-May

1999

272.50

5.19

1.880%

22-May

2000

275.40

5.00

1.730%

22-May

2001

285.00

4.54

1.730%

22-May

2002

318.00

4.83

0.450%

22-May

2003

367.60

4.63

0.400%

21-May

2004

384.30

5.84

0.300%

22-May

2005

417.30

6.95

0.980%

22 May

2006

657.10

12.46

1.010%

$1000 invested

Au

Ag

passbook

21-May

1999

1,000.00

1,000.00

1,000.00

22-May

2000

1,010.72

963.40

1,018.80

22-May

2001

1,045.95

874.77

1,036.43

22-May

2002

1,167.06

930.64

1,054.36

22-May

2003

1,349.09

892.11

1,059.10

21-May

2004

1,410.38

1,125.25

1,063.34

22-May

2005

1,531.49

1,339.13

1,066.53

22-May

2006

2,411.56

2,400.79

1,073.81

141.16%

140.08%

7.381%


An earlier version of this report was presented in May 2005.


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