In 2008 — as in 1981 — every asset class is taking a beating, says Dave Gonigam in The Daily Reckoning’s Desidooru Saloon. But that year was a major turning point, with the Fed turning the screw on inflation and the stock market about to set off on a major bull run. The gold bubble had also burst by that point. Dave says gold prices today will eventually have to catch up with real-world demand, making physical gold the most worthwhile asset to own during this downturn…

“So far this year, gold has lost less than 3%,” noted Bill in yesterday’s DR. “But stocks are down 14%.”

That’s cold comfort for many gold bugs — or for anyone whose investment strategy relies on what the pros call “non-correlated assets.” Isn’t one asset class supposed to rise when another falls?

In this regard, 2008 is feeling a lot like 1981: Every major asset class is taking a beating.

The late Harry Browne advocated a “permanent portfolio” strategy — taking the money you absolutely can’t afford to lose and tying it up in equal proportions among gold, stocks, bonds, and cash. The idea is that no matter the external economic condition — inflation, prosperity, deflation, or recession — one of those four asset classes performs well enough to pick up the slack for the other three and you can average a gain of about 8% a year.

But the key word there is “average.” Some years return better than 8%. And on rare occasion, everything gets hammered. That’s what happened in 1981. The four asset classes were down an average 6%. And so far, 2008 is playing out much the same way. As Bill noted, gold is down 3% and stocks 14%. As a proxy for long bonds, the iShares Lehman 20+ Year Treasury Bond Fund (TLT) is down about 1%. Roll over a bunch of T-bills for your cash position, and you might be up about 1%. That’s an average loss of over 8%. And by the reckoning of John Williams at Shadow Government Statistics, consumer price inflation is running about the same as it was in 1981. Ouch.

Of course, 1981 marked a turning point in many regards. Paul Volcker’s Fed was putting the hammer on inflation. We were on the cusp of an epic bull market in stocks. Neither of those appear to be the case now.

By the same token, gold’s bubble had already burst in 1981. And while the world’s central banks did a swell job in the summer of 2008 goosing the U.S. dollar and taking down the price of gold on commodities exchanges below $800… just try buying a one-ounce gold coin for a reasonable premium over the exchange-quoted price: You’ll be waiting weeks for delivery. (Word came yesterday the U.S. Mint is resuming one-ounce gold Eagle sales, but it’s putting dealers on allocation.) At some point, the ticker price will have to catch up to real-world demand.

Even analysts like Marc Faber who’ve given up on commodities (at least for now) still believe it’s worth your while to accumulate physical gold. And for some additional gold ideas, check this out.

Source: A cruddy year — for every asset class