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Gold has been a stellar performer so far in this millennium, having racked up 11 straight years of gains since 2000 and appreciating more than six-fold in price over this period. But this great run came after a decade in which the precious metal did very little, as it traded in a tight range for most of the 1990s.

While gold is a controversial investment topic for some, the debate about its future price trajectory has increased after it reached a new record high of US$1,921.15 in September 2011. Supporters of the precious metal claim that it is headed to new highs eventually, propelled by the flood of economic stimulus around the world and a dismal prognosis for the US dollar. Detractors claim that gold is an investment fad and like all fads, is bound to fade.

In order to ascertain the investment merits of gold, let's check its performance against that of the S&P 500 for the past 20 years. Gold has trounced the S&P 500 in the 10-year period from November 2002 to October 2012, with a total price appreciation of 441.5%, or 18.4% annually. The S&P 500, on the other hand, has appreciated by 58% over this period.

In the preceding 10 years, however, gold was a huge underperformer even as the S&P 500 embarked on a massive bull run. In the 10-year period ending October 2002, the S&P 500 more than doubled in price and generated total returns of over 110%, while gold declined about 6.8% in price and had an annual return of -0.7%. The S&P 500 managed to substantially outperform gold over this period despite losing 50% of its value from March 2000 to October 2012.

The point here is that gold is not always a good investment. The best time to invest in almost any asset is when popular sentiment is against it and the asset is inexpensive, providing substantial upside potential when it returns to favor. As examples, consider the S&P 500 in October 2002, and again in March 2009. Conversely, the worst time to invest in any asset is when it is at or near an all-time high. Examples - U.S. housing in 2006, or the S&P 500 in March 2000 and October 2007.

The axiom that timing is everything when it comes to investments certainly holds true for gold as well. By extension of that logic, just as there are good times to invest in gold, there are bad times as well.

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