Stocks have returned less than nothing in real money
I’ve noted several times in the past couple of years that millennium to date, stocks, despite their seemingly impressive performance in dollar terms, have lost money in terms of gold.
This continues to be the case. But how about more recently? Let’s take a look at the past five years. Stocks are slightly down in terms of gold.
This StockCharts exhibit is of the broad stock fund VT in terms of the gold fund IAU. That they are both ETFs and total returns ensures an apples to apples comparison. VT is virtually the entire world stock market in one ticker. Its expense ratio is slightly lower than IAU, actually giving it a slight advantage, so if anything this chart slightly overstates the performance of stocks relative to gold.
It changes the pricing units from dollars to gold. This is as much a commentary on the dollar and the incredible losses its issuer has inflicted upon it as it is on stocks. This extends to wages paid in dollars as well, which goes a long way towards explaining the deep discomfort average Americans express about their economic circumstances. While financial media promote the CPI as a measure of inflation and the purchasing power of the dollar, the people know their reality is different. Political animosity and civil unrest are just a couple of the consequences. Media are talking bread and circuses while living standards decay.
Upper echelons with considerable stock holdings have been insulated from most of these losses, widening the wealth gap. But on average even they aren’t quite keeping up. Only the upper echelons of the upper echelons, the upper ranks of the corporate, financial and political establishments have been outpacing inflation. Make no mistake. Inflation happens because the rich and powerful benefit and they control the machinery that produces it. Their claim it’s necessary to fight unemployment is Orwellian PR to sell it to the working class it victimizes. The stock market, meanwhile, serves as an emissary of the Ministry of Plenty, driven higher in nominal terms by virtue of being quoted in depreciating dollars while in reality, on a long trip to nowhere.
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On my mind … the overbought conditions in metals (h/t Mega).
Overbought can become even more overbought, but elevates the risk of a sharp pullback. The pace at which prices have been rising smacks of too far too fast, suggesting that fast money speculators have joined smart money investors. I know of no magic formula to identify when that selloff risk outweighs the prospects for more overbought. The fundamentals, including particularly the pressure that nearly $40T of US.gov debt puts on Fed.gov to inflate, argue for yet higher dollar denominated prices in the medium to longer term, while the overbought conditions argue for lower prices in the short to medium term, another balancing act for which I have no magic formula.
As a practical matter, everyone has to decide for oneself how to balance those risks, but commonsense diversification principles appeal to me. Set a percentage target to each of the basic asset classes of stocks, commodities and bonds, and diversify within each class as well. Just one example was recently cited here.
The main risk to those overbought conditions, ironically, would be higher official inflation data. It could take just one hot CPI report to spark speculation of a less inflation-deranged Fed, and consequently less urgency to hold hard money, sparking a selloff. The longer term rationale to hold hard money would remain, suggesting such a selloff would be a buying opportunity.
Mega’s dispatch from England:- Clueless
Watching what i suspect is the take down of my Prime Minster…….was he too bold or too weak?
Right now he under heavy attack from well informed places.
The latest is he has pulled a fast one over tax, a scam …..it looks bad, but this is just one of the troubles he is facing…………..
Digital ID:- This was one of Tony Blair’s wet dreams, i no idea if its just an attempt to suck off public money for an IT system that will bugger all good or if its an attempt to pull something right out of “1984”……but millions have already signed an on side site to say “NO!”
Its bringing out protesters onto the streets of Liverpool.
Ah yes My city is to play host to the Labour party conference this week. Liverpool was picked as its the most left wing place in the nation. Sadly its also working class & the Working class have sussed that Labour has dumped them to suck up to the “New arrivals” & their religion.
The PM is due to address the party on Tuesday…………even among the party 60% want him gone with another 16% “Unsure” of leadership…………that’s how bad it is.
Up again today………………
Year to date returns (in dollars)
US Treasuries (GOVT) +5.44%
US stocks (VTI): +13.89%
Rest of world stocks (VXUS): +26.38%
Copper (CPER): +19.67%
Gold (IAU): +43.75%
Silver (SLV): +57.84%
Platinum (PLTM): +72.43
The past year has been exceptional for gold prices. Or has it?
Let’s compare the past year with the year before.
From 2024 1001 to 2025 0929:
IAU rose from $50.21 to $72.16.
From 2023 1002 to 2024 1001:
IAU rose from $34.64 to $50.21.
Past year: +43.72%
Prior year: +44.95%
In fact gold has been a remarkably steady performer over the past two years. It did NOT just start taking off this year. It started taking off TWO years ago.
The point? The vast majority of mainstream reporting on it has been garbage. Earlier this year it was tariffs, now it’s a government shutdown, supposedly driving gold higher. If it were such news events, it would have taken quite a remarkable series of them to drive gold higher at nearly 10% each quarter like clockwork for the last two years. Or it’s really just one thing, and it didn’t start this year.
We could go as high as two things. Out of control debt and inflation, and the weaponization of the dollar. the latter especially including the seizure of Russian reserves. The US has given the world compelling incentives to replace its dollar reserves, and that’s what it’s doing. The surest way to lose an “exorbitant privilege” is to abuse it.
The implications are that it will continue until either the US stops abusing the privilege or until the dollar is an also-ran in international reserves. The Federal Reserve and the federal government would both have to become credible stewards of the dollar again. That being unlikely, gold will continue on its path to regaining its role as the world’s preferred money.
Another point. Gold may not be as overbought as it appears. On a linear chart, it appears to curve upwardly, as if the rate of gain has been accelerating. It has not. Any time you plot a large range of constant growth on a linear chart it looks that way. Properly plotted on a log chart, over the past two years the price is a linear trend channel with a steady slope of about 9.61% per quarter, or about 44.33% annualized.
Very well behaved.
Five year log chart of gold.
ITS GETTING KILLED THIS MORNING!!!
I must have missed the news they solved that government shutdown thing.
Up again, now near $3900…………….i wonder what EJ would say?
Gold hit $3893.95 overnight.
The short term is always a crap shoot. But it’s at the top of the aforementioned trend channel. So this leg up from the April-August trading range is about exhausted; I think it’ll stay under 4K for a while.
There’s no ceiling long term, though, because there’s no limit on how far the $ can fall.
Probably just a coincidence that the big ramp in gold prices started around 2023.75, same time as the resumption of M2 expansion started.