Lear Capital: Final Score Gold – 500 S&P – 14

 
on January 30 2013 2:43 PM

A few days ago I heard the statistic that in the last 12 years the S&P 500 has only gained 14 points.  That’s barely 1% per year on a compounded basis.  So, I checked it out myself.  It’s true!  What happened to the “invest for the long term” strategy recommended by the experts?

Then I checked out gold.  Over the same 12 year period, conservatively, gold rose 500%.  I don’t know about you, but when I hear or see numbers like this, it gets me thinking.  I started wondering how the prices of some of our every day goods have changed in the last 12 years.  I want to know, which investment has helped people best preserve the purchasing power of their savings and retirement accounts.

Here’s a few numbers from the BLS showing the percentage increase in the price of various goods from January 2001 to December 2012.

  • Fuel Oil – 154%

  • Gasoline – 122%

  • Bread – 46%

  • Ground Beef – 70%

  • Whole Chickens – 36%

  • Eggs – 98%

  • Milk – 26%

  • Orange Juice – 40%

  • Coffee – 83%

  • Electricity – 44%

At first look, these numbers, on their own, show that putting your money into the S&P twelve years ago produced negative returns.  In terms of real purchasing power you lose! At the other end of the court, we have the gold price scoring huge points in the protection of purchasing power.

To this fact, the anti-gold crowd would argue that gold prices have risen higher than inflation warrants.  Gold prices are up 500%, even fuel oil is only up 154%.  But these numbers ignore a significant fact.  Government subsidies of various products keeps consumer prices artificially low.  This totally screws up the CPI, PPI, the MPI, CCI and your social security check.

We have Milk subsidies, Corn Subsidies, Soy Bean Subsidies, the ever controversial oil subsidies and the list goes on.  How much do you suppose eggs would be if corn used in chicken feed was no longer subsidized?  The price of whole chickens, milk and ground beef would all be affected by an increase in the corn price.

How much effect?  Let’s take a look at oil.  What do you suppose the price of oil would be without “Big Oil” Subsidies and foreign aid to oil producing nations?  Let’s look at the price of a gallon of gas in other parts of the world where oil subsidies may not be so freely given.

Cases in point of cost per gallon of gas during mid summer 2012 from around the world:

  • Norway – $10.12

  • Turkey – 9.41

  • Israel – $9.28

  • Hong Kong – $8.61

  • Netherlands – $8.26

  • Denmark $8.20

  • Italy – $8.15

  • Sweden – $8.14

  • Greece – $7.92

  • United Kingdom – $7.87

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When you look at what a gallon of gas costs around the world, a startling truth is revealed.  Today’s global gas prices, on average, are about 500% higher than our gas prices were twelve years ago.  Now reality sets in.  Perhaps the gold price really is pacing inflation after all.

Do you believe gas prices would go up if current subsidies were eliminated?  What do you suppose higher gas prices would do to the cost of everything?  I challenge anyone to come up with any price of anything that would not rise along with fuel prices.  Is it fair to say real inflation is 500%?  You be the judge but one truth is undeniable.  Over the last 12 years, in the game of preserving wealth, gold has far outperformed the S&P.  Final Score….. Gold – 500       S&P-14.

As always, the views expressed herein are mine.  But, if you think now may be the time to look into gold, silver too, then visit LearCapital for more breaking news, free research and market insights.

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