There are people out there that have, and will in the future make money “investing” and or really trading in gold. The same can be said about real estate and countless other asset classes. Most people though, do not get good relative returns in gold or real estate. They might have positive returns, and even very high returns, but when compared to stocks over the same investment time period their returns often do not hold up.

That leads me to my very simple explanation for why investors should not look to gold. Gold has not returned nearly as well as stocks over the long-term, and it has been wildly unpredictable. I expect that trend to continue for the next 10, 20, 50, 100 years.

Why would anyone invest in something with lower return, and less predictability? I have no answer for you there. Forget lower returns, gold has gone through long periods of negative and flat returns.

Historically gold hasn’t returned as well as US Treasuries over long-term periods, and once again, it is significantly more unpredictable.

Since 1973 (when gold really began trading freely) to 2009 (period I have this data for), world stocks returned 2,229%. The S&P returned 3,552%, and US Treasuries returned 1,642%. Over this same period gold returned 983%.

There are a lot of trends right now, selling client’s “alternative” asset strategies and portfolios that hold a portion in alternatives like gold. The claim is that having a portion of the portfolio in alternatives will smooth returns. The arguments for owning alternatives like gold, fall apart when one compares returns, volatility, and predictability against asset classes such as stocks, bonds, and cash.

An asset allocation that combines stocks, bonds, and cash makes a lot more sense than trying to time the gold market.