The precious metals market is jam-packed with fictional stories, rumors and myths.
One of the biggest pieces of financial propaganda promoted over the past several years is that massive monetary stimulus by the U.S. Federal Reserve (also known as “quantitative easing” or “QE”) has been a bonanza for precious metals. Is that claim true?
Now that the Federal Reserve’s third round of quantitative easing (QE) is officially over, let’s examine the historical performance of gold, as tracked by the SPDR Gold Trust ETF (GLD), to find out.
The chart below shows that gold scored its biggest gains from the first round of QE, with a 35.7% pop. Thereafter, gold’s performance for each successive round of QE substantially decelerated.
Interestingly, gold’s gross gain of 45.8% during QE1 and QE2 has nearly been wiped out by gold’s 32.9% loss during QE3.
Furthermore, the relative performances of U.S. stocks, as tracked by the Vanguard Total Stock Market ETF (VTI), versus gold during these three periods of QE offer us another perspective on gold’s lackluster performance.
The SPDR S&P 500 ETF (SPY) gained 34.5% in QE1, 12.1% in QE2 and 46.2% in QE3. Not only did the S&P 500 beat gold’s performance during two out of three QE periods, but the S&P 500’s collective gain of 92.7% for all three rounds of QE easily outperformced gold’s net gain of just 12.9%.
No doubt, fervent goldbugs will attempt to discredit the QE performance facts by arguing the GLD is paper gold, not physical gold. Regardless, GLD has and continues to be a satisfactory proxy for gold prices.
Not even the performance of long-term U.S. Treasuries, as tracked by the iShares Barclays 20+ Year Treasury Bond ETF (TLT), — which the Federal actively bought during QE — comes close to matching stocks. TLT lost 11.22% during QE1, it lost 4.38% during QE2 and recorded a small gain of 3.88% during QE3. In other words, the U.S. stock market — not gold — has easily been the biggest beneficiary of QE.
So, the next time you see or hear a talking head on Bloomberg, CNBC or elsewhere say that QE has been great for gold or precious metals, you can laugh at them because now you know the truth.
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