It all depends on your time frame
The SPDR Gold Trust (GLD) was down 1.18% over the 12-months that ended July 31, 2012, but was up 94.55% [cumulatively] for the five-year period. Conversely, the S&P 500 ETF (SPY) gained 4.72% for the year that ended July 31st, but has barely budged over the full five-year period. Owners of usually stodgy long-term bonds have seen outrageous capital appreciation.
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10-year T-bonds are now yielding only about 1.51%. Because bond prices move inversely to yields, fixed-income is the most expensively priced in our lifetimes. If you flee into bonds now (for safety?) you are the one paying through the nose and unwittingly exposing yourself to the biggest bond market risk in history.
Every asset class has its own schedule. These cycles rarely occur with much predictability. Those of us old enough to have seen physical gold shoot to $847 per ounce in 1980 recall the many prognostications of $3,000 gold before long. After all, gold was deemed an 'inflation hedge,' and the CPI was going to continue rising at double-digits forever.
Instead, 1980's gold price peak led to a two-decade sickening (for gold bugs) decline that culminated with gold at around $250 in 2000. There was plenty of inflation over those 20 years, shooting the 'precious metals are inflation protection' theory right out of the water.
The one recurring theme that proved true again and again? Buying what's just finished surging exponentially higher equals a recipe for bad future results. Scaling into asset classes that have recently been really beaten up badly means the key to success.
Things don't always turn on a dime. Nobody knows the exact pivot points until they're well into the rear view mirror. Bonds today look like gold in 1980 or blue-chip equities in early 2000. Stocks today have rarely looked this cheap relative to their fixed-income competition.
Consider yourself fully briefed. What you do with this information is up to you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
