Here is a blast from the past. Remember when gold had 12 straight years of positive returns, from 2001 to 2012? And when it outperformed the Dow Jones Industrial Average (DJI) in 10 of those years? When the Dow began hitting new highs in 2013, it was still down 75% when priced in ounces of gold. Some people made the case that heavy money printing inflated the Dow, price-masking an economy that was in poor shape. That take has not aged well with the Dow, which is up another 85% from its 2013 highs. It is an interesting exercise to see how stocks perform in assets other than dollars.
Stocks Priced in Precious Metals
Here is a chart of the Dow, alongside gold since 1975. Gold lost about half its value from 1980 through 2000, but then surged higher over the next decade. Gold continued higher as stocks crashed during the financial crisis in 2008-2009. The metal finally topped out in 2011, and then fell nearly 30% in 2013. Gold hit a new all-time high during a strong 2020, after chopping around the $1,200-$1,400 range for a few years. And now, the Dow has been hitting new highs.
Below is the chart of the Dow, priced in ounces of gold going way back to 1910. In mid-2013, as Dow was making new highs dollar-wise, the index was trading around its long-term average of about 11 ounces of gold. After 2013, stocks did much better than gold over the next five years, until the index peaked in 2018 in terms of gold at around 22 ounces. The index is currently right around 17 ounces, which is about 25% off that 2018 high, and 60% off its all-time high of 44 ounces, reached at the height of the tech bubble. Finally, it's about 50% above the all-time average.
If you price the Dow in ounces of silver, then it's more expensive, registering a 120% gain from its all-time average. Also, it's about 50% below its all-time high, and 35% off the 2018 peak.
Stocks Priced in Other Commodities
If you are not valuing the Dow in dollars, then it seems only natural to value it in precious metals as we did above, since gold and silver have been used as currencies in the past. You can, however, value the Dow in anything. The wacky chart below shows the number of oil barrels it would take to buy the Dow. In the early days of the coronavirus stock crash, oil crashed even harder. It was so bad that some oil prices were negative as producers -- lacking a way to store the oil -- were paying buyers to take it. In barrels of oil, the Dow is about 170% off its long-term average.
Copper is often referred to as Dr. Copper because, according to Investopedia, it is said to have a Ph.D. in economics, and can predict turning points in the global economy. The chart below prices the Dow in pounds of copper. After two big years in 2016 and 2017 (it outpaced stocks in both years, gaining 17.5% and 30%, respectively), copper trended lower until after the coronavirus bottom in 2020. In terms of copper, stocks are priced around double the all-time average.
Before we look at a summary, let’s see how the Dow has performed in terms of bitcoin. I have bitcoin data back to 2015, when it took about 80 bitcoins to buy the Dow index. After bitcoin’s meteoric rise, the Dow is now worth less than a single bitcoin. The Dow is 96% below its average long-term price in terms of bitcoins.
Below is a summary of how the Dow performed in 2020, priced in other assets. I also show where the Index stands compared to their long-term average. Investors gained 7.2% for the year holding the Dow Industrials Index. If investors would have given up gold for the index instead of dollars, they would have lost 14% of it. Had they traded oil, on the other hand, they’d have 35% more oil now.