The gold standard. Good as gold. The golden years…
So many of our expressions of value and excellence derive from gold. We even use it to symbolize the lifelong commitment (ideally) of marriage. But when it comes to investing, this soft, shiny metal isn’t so precious.

In a new, animated video from Loring Ward—Financial Follies: Gold—we take a humorous look at the value of gold vs. stocks over time. Turns out, gold has been a remarkably dismal long-term investment.
The video draws on pioneering research by Wharton Professor, Dr. Jeremy Siegel on stock market returns from 1802 to 2013. Over this period, $1 invested in the U.S. market returned a staggering $930,550, despite one civil war, two world wars, incredible social and economic change and 47 recessions, depressions and financial panics (the kind of economic and social troubles that gold bugs love). That same $1 invested in gold, however, grew to just $3.21.1
If we go back even further in history, we can see that the purchasing power of gold has stayed relatively constant. In ancient Greece in the fourth century BCE, a laborer earned about two and a half drachmae per day (the equivalent of 0.012 troy ounces of gold). That’s about $20 in today’s money—more than many workers in the third world earn.2
As you can see from the chart below, over the last 500+ years, apart from a handful of booms and busts, gold’s value hasn’t changed significantly. In fact its inflation-adjusted high point was 1492, when it went for around $3200 an ounce in today’s dollars. And since 1800, it has averaged about $630 an ounce.
GoldMyth chart
Yet gold continues to cast its leaden spell over too many investors…and by the way, since 1989 (the earliest year data is available) through July 2014, the price of lead has significantly outperformed the price of gold, increasing 7.33% vs. 4.75%.3 Throughout the Middle Ages, alchemists tried to turn lead into gold. Looks like they would have been better off turning gold into lead.
During times of global crisis, there is often a rush to gold, and the airwaves fill with ads for various “can’t miss” gold investments. That’s when your clients start calling wondering if they should add gold to their portfolios. Meanwhile, fearful doomsday preppers stash gold coins away in their bolt holes—along with infinitely more useful post-apocalyptic items such as freeze dried food and ammo.
When things inevitably return to normal, gold leaves many disappointed investors in its wake.
Unlike companies that issue shares, gold doesn’t pioneer or innovate. It is attractive. It is useful. But like all commodities, it doesn’t create any value. Little wonder then that it has historically been such a lackluster investment.
As Warren Buffet noted in 2012 when gold was at $1750 an ounce (it is now around $1310):
“Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”
The mineral pyrite is sometimes referred to as “fool’s gold” for its passing similarities to gold. But at least for long-term investors, the real fool’s gold might just be gold itself.
Stock investing involves risks, including volatility (up and down movement in the value of your assets) and loss of principal. Investors with time horizons of less than five years should consider minimizing or avoiding investing in common stocks. The price of gold may be affected by global gold supply and demand, currency exchange rates and interest rates. Investors should be aware that there is no assurance that gold will maintain its long-term value in terms of purchasing power in the future.