WJB’s John Roque looks at the past 4 cycles in Gold relative to the valuation of the S&P500:

click for ginormous chart


It takes two to make a thing go right
John Roque
WJB Capital Group. Inc.
Technical Review May 17, 2010

Category: Gold & Precious Metals, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Gold Relative to S&P500 (1928-2010)”

  1. Pat Shuff says:

    The chart speaks well to the bogus but effectiveness of an endlessly reiterated mantra/narrative regarding the latest credit market kerfluffle….worst since the great depression…worst since the great depression…worst since the great depression. 1980 saw 30 yr Treasuries at 13%, home loans at 21%, the safe haven of Treasuries turned into certificates of confiscation, the dollar losing purchasing power at an annual double digit percentage,
    the VIX of bonds exceeding equities for a decade.

    After Black Monday in ’87 and the ensuing waves of selling it was decided not to close the NYSE for a cooling-off holiday, fearing that it would exarcebate not relieve the panic. When it was decided instead to close the CME at noon, epicenter of futures selling, many of the floor traders believed it would never reopen in their lifetime.

    The mercy of times passage allows for things to fade down the amnesia hidey-hole, those who were around for the most part now gone, those who weren’t fill the air with media face-time, inexperienced with the depth and breadth of palpable fear and loathing.

  2. Doctor A says:

    I posted this link last week, but why not post it again? The move in gold 2000-2010 looks a lot like the move in the Dow 1990-2000, and we know how that turned out:


  3. AGORACOM says:

    Strengthens the argument that gold will hit it’s inflation adjusted high of ~ $2,300. I can see gold doubling while S&P remains range bound for the next couple of years.

    The Greek

  4. IdiotInvestor2 says:

    The ratio can get above average if SP tests previous lows while gold seeing only a modest increase.

    Fundamentally – deflation and the Keynesian fight against it – assures slow grind up for gold. Sentiment wise, as long as CNBC is not on the gold bandwagon, there is no risk of gold being in bubble. I will start selling gold when CNBC has a octabox debate to decide whether gold should be 50% of your portfolio or only 25%.

  5. VennData says:

    We must support government efforts to make renewable gold so that we are not beholden to foreign miners …and technologies to deter gold spills and the inevitable, difficult clean up afterwards. Not to mention gold conservation: a limit on hip hop empresarios blandishing three, four and five necklaces …one for your video and one for your whip. And Indian brides need to start thinking about shacking up. Finally, we need a gold Tsar, someone who has industry experience as well as political savvy …Glenn Beck?

  6. tagyoureit says:

    Guess the follow to this is “Joy and Pain”. :D


  7. scharfy says:

    The Goldbugs will be splattered all over my windshield when this is all said and done. Get your wiper fluid ready.

    I know this to be true because every time I turn on TV there is a god damn Cash4gold, or some other calm retiree – who’s trying to get other retiree’s to pluck their live savings into a bunch of goldcoins from 1948 (ya know the good old days?)

    Don’t get me started on Gold ETF’s and the criminal activity there. Nevermind the fact if we ever go “Mad Max” and gold goes to 5,000$ an oz all most will have is a paper claim to some stupid ETF which which file for bankruptcy.

    So here’s the deal Goldbugs, buy 5% physical, stick it in your basement and if the world ends and that becomes 100 times more valuable, you can say I told ya so ya little whipper snapper!!!

    Gold at 275 was the buy, the easy money is gone…..

  8. DL says:

    The ratio chart for the 1970′s is well known to anyone who follows the markets even superficially.

    But I find the gold/SPX ratio chart for the 1930′s somewhat intriguing.

  9. The Curmudgeon says:

    The difference in the 30′s is deflation. Gold backe the currency, and it was rapidly leaving the treasury, until we decided in 1933 to no longer offer convertibility. Which was a form of sovereign default, for anyone that’s paying attention.

  10. IdiotInvestor2 says:

    scharfy :

    I did not buy gold when it was 275. I started buying when it was over 600 and all the way into 900. So you didn’t have to time it that well to make money. Post 900, I am no longer as comfortable buying more. But then the Reserve Bank of India bought a chunk – I am unsure if it is a contra indicator, or a support as they are the only central bank so openly buying gold. The price hasn’t really dropped below their purchase price – yet.

    I don’t want apocalypse. I just want CNBC to have analyst telling people to buy gold as a clue to start selling mine. Snarks aside, as long as governments around world are hell bent on trying to print their way out of this mess, gold prices have little risk of sliding. Will it go up ? Most likely, but maybe most of the rally is behind us and any gains will be slow.

  11. constantnormal says:

    Interesting chart, although way too limited in time-span to do anything other than make pointless conjectures with.

    That said, it looks like (sample size = 1, variability = unknown) the peak-to-peak wavelength for the cycle runs between 40 and 50 years. That puts the next peak at between 2020 and 2030, so if we do see a repeat of his cycle, it is likely to begin with a teaser ramp-up-and-fail (as in 1974), with the Real Deal coming a few years later, when presumably the Bananamerican dollar crumbles into nothingness.

    But as I said, that’s only a pointless conjecture, based on a single cycle in a possibly nonexistent pattern.

  12. powersjq says:

    (First off, there was no S&P 500 in 1928; let’s be clear about which data are being charted, shall we?) Maybe this is obvious, but there are two ways for gold to increase in value vis-à-vis equities: (1) G

  13. powersjq says:

    (First off, there was no S&P 500 in 1928; let’s be clear about which data are being charted, shall we?) Maybe this is obvious, but this is not a price chart we’re looking at. Even if gold prices simply fall at a slower rate than equity prices, this chart would show a climbing line. One would have to sell gold in order to buy equities (and not necessarily anything else, like dinners out or plasma TVs) in order to profit from the pattern shown here. Charts like this are supposed to show, I suppose, that one will be rich (in the dinners out and plasma TVs sense) if one invests in gold now rather than in equities, since equities are doomed. (I happen to think that they are indeed doomed.)

    The question, however, is not “Why not gold?” but rather, “What other than equities?” This is an opportunity cost question. Is gold the best alternative to, say, shorting equities?

  14. godot10 says:

    The Dow/gold ratio will go to near parity before this is all over. The remaining question is whether it will happen at Dow 3000, Dow 10000, or Dow 30000.

  15. DL says:

    powersjq @ 3:56

    It’s just an extrapolation.

    . . . . . . . . . . . . . . . .

    “Standard & Poor’s introduced its first stock index in 1923. Before 1957, its primary daily stock market index was the “S&P 90,” a value weighted index based on 90 stocks. By linking this index to the S&P 500 index, the latter has been extended back to 1918. Standard & Poor’s also published a weekly index of 423 companies”


  16. jus7tme says:

    Why is it meaningful to compare the SP500 index to the marginal price of ONE troy ounce of gold?

    Keep in mind that the former is a measure of the total market cap of the 500 largest corporations. The latter does not measure the totality of anything.

    The number SP500/Gold probably has *some* significance, but the idea that it predicts the future price of gold is silly.

  17. honestann says:

    The real chart you need to post is the price of gold in Zimbabwe dollars. That is the chart that may appear similar to the gold versus USD over the next decade. The price of gold versus SP500 is somewhat more obscure, but nobody with a brain would own financial assets or anything else that is such a wild and crazy moving target during hyperinflation… at least not with much of their wealth.

  18. thumbcharts says:

    I’ve always preferred the Dow/Gold ratio myself. This chart breaks out the three major secular cycles of the last 100 years and layers them on top of each other so you can see where we are right now in relation to past peaks and troughs.

    The two previous cycles went negative before they were done so perhaps we still have a ways to go (gold up, Dow down or more likely a good dose of both…)


    Here is the link to the entire historical gold chart series:


  19. van schaik says:

    So now we have additional proof equities are still way overvalued. http://sites.google.com/site/jpetervanschaik/