When it comes to Lent, most Christian denomination followers give up a vice, such as food, alcohol, or now in more modern times…Facebook (FB). Since Lent began on Ash Wednesday this year (February 22, 2012), investors have given up something else – gold (GLD). As a matter of fact, the shiny metal has declined by about -8% since Lent began. Stocks, on the other hand, as measured by the S&P 500, have outperformed gold by more than 10% over this period (the Lent period damage is even worse, if you look at the NASDAQ).
If you go back further in time, the underperformance is more extreme, once you account for dividends, which gold of course does not provide. For example, since the peak of the financial crisis panic in March of 2009, S&P 400, S&P 600, and NASDAQ stocks have outperformed gold by more than +40%. Yet, I am still waiting for the sign-spinning guy at the corner of First St. & Main St. to advertise stock trade-in opportunities.
Last Friday’s jobs data was nothing to write home about, so gold cheerleaders might wait for more fiat currency debasement to come in the form of QE3 (i.e., quantitative easing or printing press). But once again, while this potential added monetary stimulus may not be bad for gold, let’s not forget that stocks still outperformed gold under QE1 & QE2.
As I have always stated, I can’t disagree with the inflationary pressures that are brewing. Stimulative monetary and fiscal policies, coupled with emerging market expansion and undisciplined government spending don’t paint a pretty inflationary picture. So if that’s the case, why not focus on other commodities that provide real utility besides just shininess (e.g., agricultural goods, copper, aluminum, oil, and even silver).
The gold bugs may still have a little post-Lent party, until rates start going up and panic insurance premiums go down, but once the Fed’s easing policy stance changes (see Paul Volcker Fed Chairman era) and fiscal sanity eventually returns to Washington, investors may look to another vice to gorge on.
Disclosure: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (including small cap ETFs, mid cap ETFs, energy ETFs, commodity ETFs) , but at the time of publishing SCM had no direct position in GLD, FB, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.