Gold price: The development since the financial crisis – now the time has come for the precious metal?

Germans love gold and tend to ignore stocks. Was that worth it?

Germans love gold and tend to ignore stocks. This is how we could interpret the available figures on the investment behaviour of German citizens. Last year private individuals purchased 107 tonnes of gold, far less than China (994 tonnes) and India (760 tonnes), but considerably more than investors in European countries such as France (11.7 tonnes), Italy (18.5 tonnes) and Spain (8.7 tonnes).

The number of shareholders remains modest, with only one in six Germans daring to approach this asset class. Looking at the price of gold, how did the acquisition of gold pay off, initially in the last decade

Gold price: A comparison since the 2009 financial crisis

At the beginning of July 2009, shortly after the financial crisis, the S&P 500 and the gold price in dollars were roughly on a par: S&P 500 – $923, gold $941. After 10 years the ratio is 2975 (S&P 500) to 1405 (gold) and dividends are not yet included in the share index. A clear picture, but that may change soon. More on this later.

The period after the abolition of the gold standard in 1971

For the time before 1971 a comparison of the yields makes relatively little sense. That’s because there was the gold standard at that time, which means that in countries like the USA, Great Britain etc. the currencies were tied to the gold, there were no large yield differences.

What gold fans will certainly not like to hear is the fact that the US government imposed a 40-year ban on gold for private households from 1934 to 1974. Many years of gold bans were imposed in the 20th century in many democracies, including Germany, which were drastically affected (penalty). So what was the performance of the gold price since 1971 for a German calculated in DM/EUR inflation-adjusted compared to shares: gold 3.3 percent p.a., shares 5.2 percent p.a.

The average price of gold between 1971 and 2017 was 836 dollars, currently almost 70 percent higher.

There are even statistics dating back to 1900. Here, too, equities perform significantly better than gold holdings in global terms, although this correlation is less likely to matter to private investors. Does gold offer security against inflation and volatility? Certainly not, because the fluctuations in the gold price alone in the years 2000 to 2019 show a fluctuation range like that of stock markets including their irrational exuberance: the gold price in the low at 270 dollars (2001) and in the high at 1900 dollars (2011).

Conclusion

What can be read from this data? Although gold does not pay a dividend, it has a value stability that is thousands of years old. In certain times of crisis it provides great protection against caprioles on the capital markets. In the two years following the financial crisis gold rose from about 900 dollars to 1900 dollars, then weakened again for years.

For over a year now the price of gold has been rising from 1180 dollars most recently sharply to well over 1400 dollars. Are we back to the post-2009 phase? Many gold investors are assuming this will happen. Gold per se certainly offers protection against the crashes of paper money, but it does not pay dividends. This certainly does not make it an outstanding investment vehicle, unless you catch the period in which the yellow metal virtually explodes.

A collapse of the euro would be such an opportunity if it were to come, as predicted.

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