Most gold investors are aware of the fabulous profits in Homestake Mining Company from late 1930 until the end of 1936: $48.00 to $458.00. Not much else was going up at that time. And of course the profits in the late 1980's were wonderful and those of the last decade were too. But we also remember the deadly bearish years of the 1980's and 1990's. So gold and gold stocks are cyclical for sure, like everything else, as we have recently learned. One hears that there are no long term data for gold to base decisions upon, but that is simply not true as gold has a very long price history. Gold traded throughout the period from 1934 when the US devalued the dollar until 1975 when US citizens were permitted to own gold once more. See ShareLynx for access to much gold and gold share price data, some free and some by subscription.
Some few South African golds traded OTC in the US after World War II. Due to increasing investor dissatisfaction with profligate US fiscal and monetary policy in the 1950's (yes! even then!), Charles Engelhard, whose metals company did business in the US and South Africa, IPO'd ASA Ltd through Dillon Reed in 1958 and it listed on the NYSE where it still trades as ASA. They bought mainly the giants of South Africa's gold shares.
ASA has just published a chart of their total return since 1958 with dividends reinvested and no taxes deducted (see page 2 of the PDF). Those returns were 10.9% annualized over the 52 years from September 30 1958 to September 30 2010. This is over several cycles of bulland bear markets in the last complete Kondratieff wave and the first decade of this one.
Using Morningstar's excellent new charting system for total returns, I charted Vanguard's Wellington Fund for the same dates. Wellington, started in 1929, is a moderately balanced mutual fund holding ~70% quality large cap stocks and ~30% investment grade bonds and is very highly respected.
From 1958 to 2010 VWELX grew from $10,000 to $892,817 or 8.67% annualized, compared with ASA's 10.9% annualized growth over the same time period. 2.23% more for ASA doesn't sound like much? ASA's return was over a million dollars more!*
The point is simply to show that there ARE historical returns out there for gold-related investments, and over the last half century, exchange-traded gold stocks outperformed quality stock and bond portfolios. So I think it's safe to put some gold stocks in my portfolio for the long term, and I did so long ago. (At this time I am holding Vanguard's VGPMX, Tocqueville's TGLDX, and SIL directly and some other stocks indirectly through index funds.) Since gold stocks and other index stocks don't necessarily have their bull and bear markets at the same time, they **can** offset each other and reduce overall volatility. In 2008 everything went down, of course! But that is hopefully a very rare event.
*Keep in mind that I am accepting ASA's and Morningstar's data as they have published it and as is available. I have no independent source of data that far back. Also I am using Hugh Chou's calculators which have served me well over the years.