Gold, Stocks, or Real Estate? Comparing Investments Over Time

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Investments Over Time

Money makes the world go ‘round, and investing can be an important path to increasing your personal wealth. But with all the choices out there for investments – stocks, mutual funds, precious metals, real estate, businesses, etc. – it can be hard to decide where to place your money.

Thankfully, there's plenty of data available to help assess different forms of investment. Join us as we compare the trends and historical returns of different investments.

We've taken an in-depth look at how the value of gold has stacked up against precious metals, stock market indices, and real estate investments. We also analyzed how all of these have responded to the COVID-19 pandemic and other market recessions. Keep reading to see what we found.

Examining Gold's Track Record

Some financial experts insist that gold has never been a more promising investment. It's able to gain value even in historical economic downturns and provide a hedge against inflation of the typical currency.

In order to see why many insist that gold is such a solid investment, we first looked at gold's value over time, beginning in 1992.

Historical value of gold
The graph shows gold's value over a period of 28 years (between 1992 and 2020). Times of U.S economic recessions are highlighted in red — these were in 2001, between 2007 and 2010, and in 2020.

In the U.S., gold's value was what underpinned currency until the 1930s, when Congress nullified creditors' rights to receive payment in gold, and the gold standard was effectively lost. Proponents of keeping the gold standard say it enforces discipline on modern standards of lending since the dollar amount would always have to be linked to real, tangible gold, as opposed to something that could be printed, like paper money.

The graph above would also shed light on why gold is so well-trusted. While gold's value peaked in 1980, it's been steadily rising in value over the last eight years and has even managed to largely maintain that during the current pandemic. 

The value also steadily tracked upwards even during the Great Recession from 2007 to 2009. This is one reason why gold is often viewed as a way for people to hedge their bets against inflationary practices, which are typically set in motion by recessions.

Precious Metals Over Time

After looking just at gold, we started to wonder about other precious metals. So next, our study looked into gold's comparison to silver, palladium, and platinum.

Gold vs. Precious Metals
The data compares the price movement of gold alongside other precious metals like palladium, platinum, and silver. Palladium stands out as it underwent the greatest price surge with +96.4% in 2010, and three further significant surges between 2017 and 2020. Since 2018, gold has been climbing steadily.

Though gold has been steadily climbing in recent years, platinum and palladium have typically been similarly valuable. Palladium's value actually surpassed that of gold starting in 2019.

In the same family of metals as platinum, palladium's primary use is in catalytic converters designed to clean vehicle emissions. Other uses include in electronics, dentistry, and jewelry. The increase in palladium's value in recent years has been attributed in part to government crackdowns on vehicle pollution.

Since 2010, palladium has performed fairly well, experiencing year-over-year percentage increases in value in eight of the last 10 years. In the same period, gold only experienced year-over-year increases in value in six years.

Comparing Stock and Gold

Next, our study pivoted to look at gold as compared with major stock indices as an investment. The top portion of the graph shows the year-over-year percentage difference in value of gold, the NASDAQ, the S&P 500, and the Dow Jones. The lower portion again shows the percentage value changes in each investment type for the past 10 years.

Gold vs Major Stock Indices
The graph shows the price movement of gold versus the major stock indices over a period of 44 years. During the great recession, gold outperformed all major indices and has continued to do so in the first 5 months of a bearish 2020.

Unless you're familiar with investing, you may think the Dow Jones or the NASDAQ are just synonyms for “the market,” when in fact, they really are not. Instead, all are indices that traders can track. Essentially, they're market “slices” that can indicate how things may be going within that piece of the market. They simply represent a mathematical average. Investors can't actually trade the Dow or NASDAQ.

When we looked at the year-over-year differences from 2010 to 2020, gold saw the most year-over-year decreases in value compared to the indices. That said, from 2018 to 2019 there was a rebound of 10.6% in value.

Real Estate Comparison

The first thing that usually comes to mind with real estate investing is your home. Even though many real estate traders do have lots of options, this part of the study focused specifically on the national median sale price of a typical single-family home.

Gold vs The Housing Market
Comparing the data of gold price fluctuations alongside single-family homes highlights the volatility of gold in comparison to real estate. Since 2011, single-family homes have seen gradual increases year-on-year, while gold had four negative years, 2013 being the worst with a loss of 18.1% in value.

In comparison to the median sale price of a single-family home, gold fluctuated more heavily. Moreover, in five of the last nine years, the typical single-family home saw a higher year-over-year percentage increase in the median sale price than gold did in its value. While gold's value barely rose in 2017 and even decreased in 2018, the median sale price for a single-family home saw a 5.9% and a 6.9% value increase, respectively.

COVID-19 Fortitude

Lastly, we wanted to see how some of the key investments we've discussed thus far were impacted by the COVID-19 pandemic that has plagued the world so far in 2020. We compared gold to other precious metals and the stock indices in terms of how well they've held their value throughout the pandemic.

How different investments have weathered Covid-19
Gold prices gradually rose from March onward, while platinum and silver joined the rally with attempted recoveries in April and May. Even alongside the major stock indices, gold proved to be the steadiest investment source throughout the pandemic.

Silver, platinum, and gold held strong in April, though all of them took hits in February that they needed to make up for. The Dow, NASDAQ, and S&P 500 all followed the same trend of dipping intensely in February and March but rebounding in April and May of 2020. Gold, however, began its rebound slightly earlier and gained 1.2% in value in March. Gold also continued this pickup through April and May, just not as dramatically as the indices.

Conclusion & Further Reading

Gold's luster has yet to fade, but instead seems to shine brighter even throughout the great recession and the recent pandemic. Not only did gold remain steadier than large stock market indices, it performed better than most other precious metals.

As strong and influential as gold is, the world of commodity trading is so much larger. From gold to oil and everything else, Commodity.com can help with your trading endeavors and education. 

Methodology & Limitations

We sought to compare different investments, including stock indices, property, and commodities like precious metals, over time.

We used the Quandl API for Commodity Data to gather the data for all precious metals included in the study except for gold, for which data from Macrotrends were used. Historical prices were based on annual averages that were calculated based on the closing value on the last day of the month. Historical prices were transformed to a deflated series using an inflation adjustment, specifically by scaling values according to the proportion of the mean 2020 Consumer Price Index to the mean Consumer Price Index in a given year. Therefore, these series are represented in 2020 dollars to convey the underlying value of assets over time.

When presenting economic recessions in this project, we used information from this source on the frequency and duration of U.S. economic recessions since WWII. It is not unusual for recessions to last less than one year, as was the case in 1980. However, given that we chose to look at annual data, years where a recession took place were shaded as such, even if the recession didn't last the full calendar year.

Housing data from Zillow were used to look at the year-over-year percentage differences in value for single-family homes. We used Zillow data on the national median sale price of a single-family home. As with the precious metal values, the median sale price was reported monthly. In our visualization of the data, we calculated annual averages.

Limitations

There are many potential sources and trackers of commodity data. This project speaks only to the data from the sources we chose to use, which have been outlined in the methodology. Other sources may differ in their reporting, tracking, and presenting of commodity data.

It should be noted that comparing a commodity like gold to home values and stock indices are imperfect comparisons as their values are determined with different metrics. For example, stocks pay out dividends, while in a home you accrue equity in a home. Rental income can also be a factor in assessing the value of a piece of real estate. Gold doesn't not gain either equity or dividends. We did not factor in these nuances in this project.

Additionally, this project focuses solely on historical trends. None of the information presented should be considered financial advice. We urge you to seek guidance from qualified professionals on all investing decisions and to fully understand the risks associated with various investments.

Fair Use Statement

Investment decisions can often be overwhelming with the vast number of options and available information out there. If someone you know could benefit from information in this project, you are able to share for any noncommercial reuse. Please link back here so the project can be viewed in its entirety and the methodology reviewed. This also gives credit to the contributors who make this work possible.

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