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Gold Performance

22 May 2005

      Abstract: For the period 21 May 1999 to 22 May 2005, holding gold was 8.43 times better than holding cash in a passbook savings account. Holding stocks that exactly modeled the Dow Jones Industrials would have lost you 3.3% of your money.

Gold and silver are presently good ways to hold cash. In fact, for the last six 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. (Liars, thieves, and bureau-rats seem to compose the majority of the population of most governmental agencies, which factor lends little credence to their words.)

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 2005 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 20 May 2005 is 10471.91. The loss for this period is about 3.3%. 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 $967. 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 for comparable and much worse results, respectively.)

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 2005 was $417.30. So, an investment of $1000 on the first date would have brought in 3.67 ounces of gold. This amount of gold was worth $1,531.49 on 22 May 2005. You'd have more value holding the same amount of gold, by over 53%. (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 $6.95 on 22 May 2005. One thousand dollars would have bought 192.68 ounces troy of silver, which was worth $1,339.13 on 22 May 2005. A nice 33.9% improvement.

For passbook savings accounts, our first instinct was to model the interest rates we were able to find for the years 1999 to 2005 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 8 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 find 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.


Au

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%

$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

53.15%

33.91%

6.65%

6.302%

May-99

1,000.00

Jun-99

1,001.57

Jul-99

1,003.14

Aug-99

1,004.71

Sep-99

1,006.28

Oct-99

1,007.86

Nov-99

1,009.44

Dec-99

1,011.02

Jan-00

1,012.48

Feb-00

1,013.94

Mar-00

1,015.40

Apr-00

1,016.86

May-00

1,018.33

Jun-00

1,019.80

Jul-00

1,021.27

Aug-00

1,022.74

Sep-00

1,024.21

Oct-00

1,025.69

Nov-00

1,027.17

Dec-00

1,028.65

Jan-01

1,030.13

Feb-01

1,031.62

Mar-01

1,033.10

Apr-01

1,034.59

May-01

1,036.08

Jun-01

1,037.58

Jul-01

1,039.07

Aug-01

1,040.57

Sep-01

1,042.07

Oct-01

1,043.57

Nov-01

1,045.08

Dec-01

1,046.59

Jan-02

1,046.98

Feb-02

1,047.37

Mar-02

1,047.76

Apr-02

1,048.16

May-02

1,048.55

Jun-02

1,048.94

Jul-02

1,049.34

Aug-02

1,049.73

Sep-02

1,050.12

Oct-02

1,050.52

Nov-02

1,050.91

Dec-02

1,051.31

Jan-03

1,051.66

Feb-03

1,052.01

Mar-03

1,052.36

Apr-03

1,052.71

May-03

1,053.06

Jun-03

1,053.41

Jul-03

1,053.76

Aug-03

1,054.11

Sep-03

1,054.46

Oct-03

1,054.81

Nov-03

1,055.17

Dec-03

1,055.52

Jan-04

1,055.78

Feb-04

1,056.05

Mar-04

1,056.31

Apr-04

1,056.57

May-04

1,056.84

Jun-04

1,057.10

Jul-04

1,057.37

Aug-04

1,057.63

Sep-04

1,057.90

Oct-04

1,058.16

Nov-04

1,058.42

Dec-04

1,058.69

Jan-05

1,059.55

Feb-05

1,060.42

Mar-05

1,061.28

Apr-05

1,062.15

May-05

1,063.02

63.02

6.302%


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