Gold outperformed bonds and stocks over the last 20 years, and there is a good reason to expect that it will happen again. Stock valuations are still near record highs even after a major correction last month. Gold actually rose during October, which may be the beginning of a trend.
To know where we are going, we have to know where we have been. The price of gold rose a total of 316% between November 1998 and November 2018, while the stock market went up by only 254%. The gut reaction of many stock bulls to this simple fact would be to claim that these years have somehow been chosen to make gold look good. The truth is that the stock market did extraordinarily well last year and during the late 1990s. If anything, the 20-year time frame makes the situation in the stock market look much better than it really is.
The collapse of the late 1990s Dot-com Bubble is one of the reasons for the relatively low stock returns of the last 20 years, but the stock market is even more overvalued today than it was in the 90s. One of Warren Buffett's favorite measures of stock market valuation is market capitalization as a percentage of GDP, and it paints a bleak picture for the market. The stock market hit a record high 166% of GDP in 2017. To put that in perspective, the market was only 125% of GDP in 1997 and 153% near the top of the bubble in 1999.
Bonds did far worse than either stocks or gold over the last 20 years, and the future looks even darker. Intermediate Treasury bonds have gone up just 133% since 1998, and that number is not adjusted for inflation. Bond interest rates remain much lower than they were in 1998, so lower returns are assured in the short-term. The Fed is raising rates, but that also creates downward pressure on bond prices. It seems very unlikely that bonds will be the safe haven that they were during the bear markets of the early twenty-first century.
Gold turned out to be a better investment than the S&P 500 during the last 20 years, but there are very few people in the mainstream press talking about gold today. That shouldn't be surprising because the media wasn't covering gold 20 years ago either. Their Wall Street sponsors don't want you to know that simply buying and holding physical gold bullion is more likely to work than trading stocks. You don't have to follow the news. You don't have to make lots of stock trades. You can beat the market, the media, and most Wall Street fund managers when you invest in gold.