The One-Year Survey

There is an old saying that in the land of the blind, the one-eyed jack is king. Similarly, in the land of little or no yield and plunging asset values, there is something to be said for that which holds its own, as gold did in USAGOLD's Annual Survey of Investments for 2009.

When viewing the chart, please keep in mind that it covers the 365 days from July through June. In years past, the midyear starting point for our survey has not provided any distinct advantage to our readers, but this year it happens to cover precisely what many believe to be the most destructive period in financial markets since the Great Depression. As a result, what you see here are the performance rankings for key investments since the full inception of the crisis during the summer of 2008.

It was a very bad year for investors. Stocks and real estate fared miserably -- down 17.05% and 25.58% respectively. Those losses were based on averages. In some cases and locales, the losses were substantially worse. Gold stocks seemed to take their cue from the larger stock market (rather than gold itself) dropping 18.88%. The best places to be, other than the skyrocketing commodities complex (up 33.09%), were green (as in cash, cd's and Treasuries) and gold (as in coins and bullion). The trend was away from risk and toward safety. This year's successful investor kept in mind veteran market analyst Richard Russell's admonition: "In a secular bear market, he who loses least wins."

The Five-Year Survey

In the five-year survey, gold tops the rankings with a 113.8% return. Of its primary competitors only gold stocks and fine wine* mounted respectable challenges (up 68.5% and 112.86% respectively). Stocks (down 17.79%) and real estate (down 25.03%) were the big losers over the period. Diversification is the hallmark of the prudent investor, and the past five years have provided ample proof of the principle. A stock purchase of $100,000 in 2005 would have been worth $82,210 in 2009. By contrast, a $100,000 purchase of gold coins and bullion in 2005 would have been valued at $213,800 by 2009 -- a swing in net worth difficult to ignore.

Concluding Remarks

Mining Weekly recently published a revealing interview of Gold Field's Chief Executive Officer Nick Holland. Holland, basing his opinions on 60 fund managers he visited over the last year, says that investment demand for gold will grow to match jewelry demand over the next three to five years.

Why? Because virtually every one of the fund managers he visited is "seeking the best investment entry point [for gold]." He believes that nascent fund demand for the hard metal will take the price to the next level. Holland sees "widespread demand for capital preservation" as driving fund manager interest. "People are not even talking about getting a return," he says. "What they're asking is how they can save their capital, that's why they're going into gold, and that's going to be the mainstay of the gold price going forward."

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The purpose of studies like our annual survey is to provide some perspective. For many of us, the past year flew by in something of a blur. We lived it, but did we really comprehend what happened? Better put, is it even possible to comprehend what happened? The pundits and economists no doubt will nurture a publishing industry surrounding events from the summer and fall of 2008. In the end, though, it is we, not the pundits, economists, politicians and central bankers, who are responsible for the future health of our portfolios, and we who need to make the necessary and correct decisions.

Hopefully, our annual survey offers something concrete along those lines -- a starting point for those attempting to decide what should be done next. The standard caveat applies that the past is not necessarily an accurate indicator as to what might happen in the future. Still, there are lessons that can be drawn from the past year and adjustments that can be made starting with the obvious one that, in times like these, a little safety in the portfolio goes a long way.

Nick Holland's survey blends nicely with our own. There is a reason why gold has done so well over these tumultuous past five years. Of the ten investments listed, only gold can protect simultaneously against inflation, deflation, stagflation and hyperinflation, and no matter in which order they arrive. That latitude and versatility have made it a magnet for contemporary portfolio planners looking to hedge economic uncertainty -- a circumstance likely to secure gold a prominent place in our survey rankings for many years to come.

*The successful investor in fine wine is presented with something of a dilemma. How does one justify consuming an investment that has produced a better than 20% annualized rate of return?

Michael Kosares has over 35 years experience in the gold business and is the founder/owner of USAGOLD-Centennial Precious Metals. He is the author of The ABCs of Gold Investing: How to Protect and Build Your Wealth With Gold as well as numerous magazine and internet articles. He is frequently interviewed in the financial press and is well-known for his ongoing commentary on the gold market and its economic, political and financial underpinnings.

Research statistics by Peter Grant.