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How does gold stack up compared to shares like CBA, CSL and the ASX?

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Let me make an admission. I have never bought gold and don’t think I ever will. I concede those who have bought it ever since Donald Trump starting spooking the world with a trade war with China have done well.

The US President announced his intention to impose a 25% tariff on steel and a 10% tariff on aluminium imports on March 1, 2018. In a tweet the next day, Trump asserted, “Trade wars are good, and easy to win.” On March 8, he signed an order to impose the tariffs effective after 15 days.

This hurt the stock market, as the following chart shows.

 

S&P/ASX 200

It took until August 2018 to prove Trump meant business but when it was clear that this was serious, stocks fell nearly 20%. Gold took off, and the gold bugs really thought their wait was worth it. 

So let’s look at the wait and then compare how you might have gone being a gold investor/speculator against alternative ‘gold’ investment alternatives, such as CBA, CSL and say the ASX.

To make a meaningful comparison, I’ve decided on a starting date of 16 March 2009, as this was when the stock market was starting to recover from the GFC and gold was taking off.

The period 2009-2011 had a lot of uncertainty and the US even lost its AAA-credit rating, so it was a good time for gold speculation. However, from 2012, belief in the US recovery and the success of the Fed’s stimulus programmes eventually helped stocks, at gold’s expense.

The price of gold got around $US1,900 an ounce in August 2011, then fell to about $US1,200 in 2015. Then it went up and down sideways until the trade war kicked in.

Obviously, if you bought in 2005 at $US400, then today’s high price would make you happy that you stuck solid with the yellow bar. But let’s compare how you did if you opted for gold over shares like CBA, CSL and the ASX.

On 16 March 2009, CBA was around $31. If you’d opted for the bank over gold, your capital gain up until today (with the stock at $73) would’ve been 132%. Using the gold price of $US916 and using $1,900 for today’s price, that would have been a 107% gain. In contrast, the ASX stock, which went from $28.55 in March 2009 to $83.50 today, was a gain of 192%!

But wait, there’s more.

Both CBA and the ASX are big dividend deliverers, while gold gives nothing but capital gain or loss, and peace of mind for those who fear Armageddon.

Anyone who bought CBA in 2009 for $31, last year had a yield of 13% on average before franking! Of course, that’s because you bought at $31 but it says a golden company, such as CBA, will not only hold its own (capital gain-wise) but while you’re waiting for it, you can be pocketing some great income. Gold, on the other hand, is a waiting game.

For the ASX stock, the dividend yield went from 5.7% in 2009 to 13.2% last year. There’s something appealing about quality companies that pay dividends, which are bought when markets are nervous, like they are today.

And if I haven’t convinced gold bugs that there are better investments than gold, let’s look at a stock that doesn’t pay much in the way of dividends — CSL.

Over the same timeframe (2009 to today), the capital gain was around 730% compared to gold at 107%. 

But wait, there’s more.

If you bought CSL on 16 March 2009, you would’ve paid $32 and based in the 2019 dividend of $2.65, your dividend yield was 8.2%!

I’m not saying gold is a bad investment. And I’m not saying that it doesn’t have some good safety functions. But you do have to time it and you can wait a long time for a return. And while you wait, you don’t get dividends.

For the ‘Nervous Nellie’, who lives on $80,000 a year, holding gold for a bad year when the stock market crashed could be an optional play. But up against quality companies, it lacks the annual income and can even be clobbered on a capital gain basis.

Sure, the short-term player can get a quick buck. But if that was you in 2012, you’ve had to wait eight years with no income to see the gold price back to the $US1,900 mark. That’s a long wait if you really went too long gold.

Peter Switzer is one of Australia’s leading business and financial commentators, launching his own business 20 years ago. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531). All prices and analysis at 30 July 2020. This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.