Epic Gold Market To Follow Epic Stock Market Bubble

Most investors are more interested in getting richer than preserving wealth. This is why they will never exit the stock market. As the Dow up 39x in the last 50 years this has been the right strategy. Only since 2009, the Dow is up 5x! So clearly a Win-Win position!

But as Jeremy Grantham recently said, stocks are in an “epic bubble”. Still, most investors ignore this since greed dominates their emotions. If stocks are up 3,800% since 1971, there is no reason why it shouldn’t continue.

STOCKS or GOLD

During the last 50 years, we have seen 5 vicious corrections in the Dow of between 41% and 55%.

But even with these corrections, the Dow is today 39x higher than in 1971.

There is another relatively small but important investment asset which represents only 0.5% of global financial assets. That asset is up 53x since 1971.

But it hasn’t been an easy journey for this asset either. There were 3 major corrections in half a century between 33% and 70%.

I am of course talking about gold.

If dividends are excluded gold has outperformed the Dow. With dividends reinvested, the Dow has outperformed gold by 3x. Leasing or lending the gold would have reduced the difference somewhat.

But the principal reason to hold gold is that it is nobody else’s liability and therefore physical gold should never be leased as it defeats the purpose of holding it for wealth preservation.

We must also remember that a stock index doesn’t tell the truth. Unsuccessful or failed companies are continuously taken out of the index and the most successful companies added. Therefore an index gives a much rosier picture than what really happened.

THE DOW WILL LOSE 97% IN REAL TERMS

All of the above is history. Even though gold has yielded an excellent return, it is what happens to the Dow/Gold ratio in the future that determines if investors should stay with stocks or hold gold.

The chart below of the Dow-Gold ratio gives us the answer.

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