Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and the S&P 500 Index: Sum and Ratio

Commodities / Gold and Silver 2014 Oct 07, 2014 - 04:09 PM GMT

By: DeviantInvestor

Commodities

The US national debt in 1989 was about $2.8 Trillion.  Twenty Five years later, in 2014, that debt had increased by a factor of about 6.3 to $17.8 Trillion.

For many decades the US piled on more debt, increased the currency in circulation much more rapidly than the economy grew, and of course, caused consumer prices to increase substantially.  Naturally the S&P 500 Index increased, as did the price of gold, since each dollar was worth less.


Consider the graph of the SUM of the S&P 500 Index and the price of gold.

Gold Plus the S&P 500 Index

Debt increased, prices increased, and the dollar purchased less.  Now consider the RATIO, as shown in this graph of gold divided by the S&P 500.

Gold Divided by the S&P 500

The ratio at the gold peak in 1980 was about 8.  You can see that the ratio was trending downward from 1980 (graph shows since 1989) to about 2001.  Subsequent to the stock market crash of 2000, 9-11, and the massive increase in spending and debt, the ratio now trends upward.

We know that the official national debt is increasing about a $Trillion per year.  Graph 1 shows that as debt increases, so does the sum of the S&P and gold.  Graph 2 shows that gold increased relative to the S&P from about 2001 to 2011, and then fell.  Gold is now deeply oversold compared to the S&P and ready to rally, unless you believe that the US national debt will start decreasing (not likely) or that the S&P will continue skyward for the foreseeable future (not likely).

Will gold reverse tomorrow, next week, next month, or next year?  Good luck with that question!  My guess is very soon, but the high-frequency-traders, central bankers, and politicians seem to be more influential than physical supply and demand.

Regardless, the critical points are:

  1. Debt is increasing exponentially and that will not change.
  1. The sum of gold and the S&P increases along with debt while the purchasing power of the dollar, euro, yen, and pound decreases.
  1. Gold, relative to the S&P, decreased from 1980 to 2001 and then increased to 2011. It is now quite low compared to the average of the ratio since 1980, and particularly since our modern world changed on 9-11.
  1. Gold is likely to increase for the next several years relative to the S&P as it “regresses to the mean.” If the S&P falls in the next several years and the sum of gold and the S&P continues to rise, along with debt and consumer prices, then gold will perform nicely as an alternative to unbacked paper currencies supported by nothing but faith and debt.

For more information on gold, read my book:  “Gold Value and Gold Prices From 1971 – 2021.”  It is available here and here.

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2014 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in