Stock Market Climbs – Gold Declines

In the twelve years from August 1999 to August 2011, the price of gold increased a remarkable 650 percent.  While inflation was tame during that period, two huge declines in the stock market during that period and fear over the stability of the U.S. financial system helped drive gold to its historical nominal high (although the price of gold has never surpassed its inflation-adjusted high in 1980).  Countless advertisements for gold have aired over the last few years, touting gold’s unique ability to hold its value.

While serious economic problems persist in the U.S. and around the globe, the stock market has soared since hitting its Great Recession trough in March 2009.  Through May 8th, the S&P 500, a popular gauge of the stock market, was up an impressive 14 percent thus far in 2013.  As investors have returned to the stock market, gold has fallen on rough times; it is down to less than $1,500 an ounce from more than $1,900 in 2011.  Now investors who purchased gold when it was near its nominal peak face the difficult decision of whether to hold on to the metal, or to sell and cut their losses.  Although gold is often touted as a surefire way to avoid the ravages of inflation and currency debasement, its history dating back to the 1970’s shows that it can be quite volatile.

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