What do gold and the stock market have in common
2023.01.27 16:07
What do gold and the stock market have in common
Budrigannews.com – Gold prices and commodity prices are inversely correlated with the US stock market over very long periods. The US stock market experiences a secular bear market when commodity and gold prices are in a secular bull market. However, the relationship between these asset classes can take many forms over shorter time frames, like a few years.
The stock market and hard assets have trended in opposite directions, gained together, declined together, and occurred multiple times. Nevertheless, because the secular trend is shifting in favor of gold and other hard assets, our focus is on it. Precious metals have not performed as well as they did in the 1960s, but the current and most recent periods have been comparable to those years.
The fact that the US stock market has not slowed down like it did in the 1960s, when it was in a secular bull market, is one major reason. Additionally, today’s gold stocks face significantly more competition for investor capital than they did 60 years ago. Emerging markets, foreign currencies, TIPS, and Gold ETFs are all available to investors.
60 years ago, none of these options were available. The fact that precious metals have not consistently outperformed the stock market is the real problem; however, when they do, we will be able to confirm the beginning of a new secular bull market.
We plot the S&P 500 with two ratios in figure 2.4: gold stocks in comparison to the S&P 500 and gold in comparison to the S&P 500. Gold and gold stocks can only be in a genuine bull market if they outperform the stock market, as demonstrated over the past seven years.
These ratios are very similar to what they were in the 1960s, but in order to start a secular bull market in precious metals, they need to break above their highs in 2016 and 2020 (the blue lines of resistance).
Additionally, I should point out that Barron’s Gold Mining Index is currently more robust than the majority of gold mining indices, which better reflects current share prices.
