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If you are holding gold and silver bullion you don’t need to be told what a great year it has been.

December 27, 2010 – If you are holding gold and silver bullion you don’t need to be told what a great year it has been. But if you still need convincing that gold and silver are good investments, let’s take a cold analytical look at their performance compared to stocks over the first decade of this century.

The most basic approach to do that is to compare their performances. For example, in that period all but eight of the Dow 30 posted net losses while gold produced a compound return of over 14%. In fact, gold left the Dow’s top performer in the dust by a margin of nearly four to one.

Another simple comparison is with the consumer price index, and gold has strongly beaten that since it was freed from the dollar in 1971. More to the point, to purchase the Dow today takes only 40% of the amount of gold it took to do so in 1972.

On a more technical level we can compare Sharpe ratios, a widely used and accepted measure of returns adjusted for risk. Simply put, the ratio divides the rewards realized from greater risk by a measure of that risk, or volatility (the standard deviation), and it tells us what the relative rate of return for any investment would be if it were risk free.

Obviously, considering risk and reward together is much more meaningful for evaluating investments than the more simplistic methods, and by that standard both gold and silver investments have outshined the Dow as a whole as well as every single Dow component. In fact, no Dow stock has come close to gold’s performance and only two have given silver any competition.

Make a New Year’s resolution to invest in gold and silver – you’ll be glad you did.

Shannon King

Senior Staff Writer – GoldSilver.org

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