Market Overview

Gold Or The DJIA: Which Would You Rather?

Gold Or The DJIA: Which Would You Rather?

One of the great investment success stories of the past couple of decades was the meteoric rise in gold prices, which occupied most of the early 2000s and on into 2010. 

Gold (NYSE: GLD) was propelled ever higher due to a conflation of factors, but saw its meteoric rise really take flight after the asset bubble burst in 2007-2009, and the resulting Great Recession. The past couple of years, however, have been tough on gold, and have seen the stock markets take on the role of investors' chief investment destination.

Let's take a look at the past 12 months of gold prices, versus the Dow Jones Industrial Average, in order to see if looking back may give some indication as to what the near future holds.

Related: Zynga Or Groupon: Which Would You Rather?

It is been a bumpy ride for gold over the past 12 months. The yellow metal's spot price is down this month from its highs of April 2013. For example, on April 26, 2013 gold briefly traded at $1,490, a price which would only be surpassed a couple of times through the rest of the year. Going into late 2013 and early 2014 investors placed gold’s value at about $1,200 per ounce. But with the Ukraine/Russia crisis flaring up this pas

February and March, gold was able to rally above $1300 per ounce, where currently trades.

The Dow Jones Industrial Average opened April 16, 2013 at 14,599. Initially the average's ride was extremely bumpy as well, oscillating between 14,800 and 15,700 several times before the fall of the year.

But going into mid-October the DJIA finally gained some sustained momentum, which pushed the average from about 15,000 to a year-end close of 16,576 in a matter of two and a half months. Though the average has stayed strong overall in 2014, a significant selloff in February and pressure stemming from banking stocks, technology stocks and the Ukrainian crisis, has prevented the DJIA from making significant new highs for the year.

As it relates to the past 12 months' value increases, the DJIA has gold beaten, hands down. While the Dow was making new highs, gold was mired in a trading range which was more than $700 off its historic highs, highs which it had achieved about a year and a half earlier.

But going into 2014 gold saw significant gains while the Dow has been mostly stuck. It seems that the determining factor as to which of these investments will have the better 2014 will come down to, as always, external factors.

If the crisis in  Ukraine continues to escalate, this factor alone could push gold ever higher. Meanwhile, the stock markets are looking to the Federal Reserve to continue its policy of cheap money for the rest of the year. But many would argue the markets already priced in such Federal Reserve actions, or lack thereof. Hence, should there be a reason which causes the Fed to suddenly back off of its long-term tapering plan and raise interest rates this year, the Dow will likely suffer as a result.


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