Here’s one for the Gold Bugs:
>
click for larger chart
courtesy of The Chart Store
Note this does not include last week’s market action . . .
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Money is power, & you ought to be reasonably ambitious to have it." —Russell H. Conwell, Temple Univ, 1877
"It's the end of the world as we know it and I feel fine" say the French as consumer confidence in May rose to the highest since Nov '10 as they welcome and get excited about new Pres Hollande. Also, the French 10 yr bond yield touched the lowest on record this morning. June consumer confidence in Germany held at 5.7, just .2 pts off the highest since Mar '11. To the euro bond debate which is now taking on greater rhetoric with those with high bond yields wanting them and those with low ones saying no way, ECB member...
read more »
Tweet
Facebook
Reddit
Digg this!
May 11th, 2010 at 12:42 pm
Isn’t it even more interesting that from the 4/71 top to the 12/74 bottom it lost exactly the 87.45%.
So close to today’s -87.26% first leg down.
May 11th, 2010 at 12:44 pm
Also the 8/76-01/80 leg is -86.9%.
All legs look equal.
May 11th, 2010 at 12:58 pm
Robert Prechter has been talking about this since 2002 or even earlier – However, he shows DOW vs Gold.
May 11th, 2010 at 1:01 pm
Looks like you should be able to model an interesting spread, as the trend lines seem to run 5-10 years.
May 11th, 2010 at 1:05 pm
Still some room to run?
May 11th, 2010 at 1:17 pm
Still some room to run?
I think so. IMO, gold peak will be around Dow/Gold ratio of 2 to 1. That has been the peak of the past secular cycles except for 1980 where it actually got to 1 to 1, but I wouldn’t count on that. At 2:1 dump your gold, and buy stocks for the next 10-20 years. I’m figuring when that happens Dow/SPX dividend yield will be around 4%+ and one can actually buy and hold for income rather then the expectation of a greater fool paying a higher price for a baseball card as in this current upcycle.
May 11th, 2010 at 1:22 pm
What is interesting is the comparison between the Dec 1974->Aug 1976 bounce vs. the current bounce. Gold has risen along with the S&P this time.
May 11th, 2010 at 1:28 pm
What’s interesting is these are both real assets (or at least stocks are a claim on real income). So I’d assume it’s more meaningful than a real to nominal (i.e. currency or bond) comparison.
May 11th, 2010 at 1:31 pm
i am not anti-gold, but there are a number of ‘black swans’ out there (Rumsfeld’s unknown unknowns) that could throw a wrench into the works
that is, i do not agree with gold bugs “gold is a sure thing”
in any market, there is no such thing as a ‘sure thing’
(unless, of course, you are Goldman Sachs)
May 11th, 2010 at 1:37 pm
Meaningless Voodoo.
I like the way he highlights the declines, “-95%” but does not highlight or annotate the big normal “gold sucks / risk assets pay” trade. Why not a green line that says, “+4000%”?
Course, none of this analysis includes dividends on the stock market… which changes all these notes substantially… and makes it more like “+10,000%” versus Gold from 1980 to 2000.
But hey, truth is not really the point here… is it.
May 11th, 2010 at 1:50 pm
http://runningofthebulls.typepad.com/toros_running_of_the_bull/2010/05/euro-bailout-bullish-for-gold-bearish-for-the-euro.html
Devaluation of fiat currencies is ultimately bullish for real assets. It is good for stocks, commodities, real estate, art, wine, stamps, you name it. And it is best for real assets in structural bull markets, such as gold.
It is difficult for a value investor such as myself to invest in assets hitting all-time highs, but I do not see how the policy responses by governments are anything but bullish for gold over the intermediate-term. Countries have assumed massive liabilities, and the coming demographic problems regarding state-funded pensions and medical systems will only make the situations worse. I do not know how gold is going to do anything but rise over the next several years.
During the past few months, gold has decoupled from its inverse relationship with the dollar. This is the ultimate end game. Because the dollar is the anchor for all fiat currencies, a falling dollar eventually leads to all fiat currencies falling against real assets. This is now happening.
May 11th, 2010 at 2:15 pm
This chart seems pretty relevant to the conversation, as it tracks the Dow to Gold ratio back to 1915. We’re currently standing at around 9.3 ounces of gold to buy the Dow.
Previous cycle lows have been 1.94 oz in February of 1933 and 1.29 oz in January of 1980.
http://www.thumbcharts.com/1378/dow-to-gold-ratio-since-1915
Link to the complete gold chart series:
http://www.thumbcharts.com/series/historical-gold-prices-1915-2010
May 11th, 2010 at 2:18 pm
Here’s another one you might like. Layers the Dow to Gold secular cycles on top of each other for a better visual comparison…
http://www.thumbcharts.com/1379/dow-to-gold-secular-market-cycles
May 11th, 2010 at 2:32 pm
Heh, does this include dividends? Last I checked, holding gold yielded none of that.
May 11th, 2010 at 2:38 pm
“Because the dollar is the anchor for all fiat currencies, a falling dollar eventually leads to all fiat currencies falling against real assets. This is now happening.”
Gee, does this mean my house is going to be more valuable soon? It being “real” and all?
May 11th, 2010 at 2:48 pm
@dave: Is your house made of gold? It’s not? Oh, nevermind.
May 11th, 2010 at 2:55 pm
Schiller made a nice historical house price chart a few yeara back…
http://economistsview.typepad.com/economistsview/2006/03/shiller_longter.html
If you plot the median home price each year in gold ozs you get some interesting trends….
I tried it back to the great depression a few years ago and made some decisions accordingly….
May 11th, 2010 at 4:18 pm
Re: Dividends.
I’m afraid 2-3% dividents won’t change the trends on this chart, as it can be wiped out in an inflationary period.
Re: Dow vs. Gold.
One more vote on “Dow vs. Gold.” Traditionally, when the “Dow vs. Gold” ratio hits 1 to 2, it is time to sell gold and buy stocks. It’s just a simple economic cycle, nothing more. Peter Schiff talks about it all the time.
I expect the ratio to reach 2 in the next 5 years.
May 11th, 2010 at 4:23 pm
Gold is indeed a “real” asset.
It has no counter-party. It is an alternative currency that has no political constituents. It is a “precious” metal that has finite supply on this planet. No one can take away the gold coin in your hand. What’s not to love?
Gold price is stabilizing at $1200 now. With the EU’s TURP 2.0, I expect gold to climb even higher from here, until its price meet Dow (5000? 10000? somewhere in between?).
Just my 2 cents (which are devaluing quickly)
May 11th, 2010 at 4:32 pm
i’ve seen these charts before
to selectively express, ex post, the S&P in terms of gold commodity/currency – and then in USD only – is at best a curiousity
• check a chart of gold vs a strong currency, eg AUD 5 years
(still off peak)
http://goldprice.org/charts/history/gold_5_year_o_aud.png
• a chart showing the S&P in terms of chicago pork bellies would be of similar utility
• “The future ain’t what it used to be.”
Yogi Berra
May 11th, 2010 at 4:33 pm
Gee, does this mean my house is going to be more valuable soon? It being “real” and all?
Not sure you understand the concepts of “real” value versus “nominal” value. But no, your house probably won’t be more valuable in real terms anytime soon. There was a massive overbuilding of houses the last 10 years, far more then will be needed for a long, long time given demographic and family formation trends. That said, the nominal value may indeed stabilize and/or increase since as Ben Bernanke quite eloquently stated in his 2002 speech dollars can be produced/increased at zero cost.
May 11th, 2010 at 4:35 pm
FYI, Gold hit all time high (nominally) today at $1232.
It was $850 high in 1980, which is inflation-adjusted to be $2,275 today.
I always thought the sport of golf is boring until I took it up and hit a few balls. I can say the same thing with gold investing.
May 11th, 2010 at 5:13 pm
panchog –
prior to the 80s and the great modern decline in interest rates index div yields were regularly 5% or more.
this compounds enormously over long-periods of time… so a 10-yr chart that shows the market declining in the 70s is missing +50% dividend returns. thats alot.
over the modern period, spx is up about 10x since 1985, while gold is up 30-50%. course.. this is without divs. WITH DIV… the stock index is up more like 50x, right? behold the power of compounding.
gold COSTS money to store, insure, and secure.
gold is up about 4% / yr annual on 50-yrs, 100-yrs, 500-yrs. its a piss poor asset.
May 11th, 2010 at 5:16 pm
@Mike: I’m a silly guy, but not silly enough to think I’m going to get real value out of my real asset. I know funny money is the current coin of the realm, so I’ll settle for some. I can put the cash in my savings account and watch it grow at .o5% per annum. These are great times!
May 11th, 2010 at 5:19 pm
The price of gold seems rather irrelevant to the real world. It affects nothing. I keep reading that Bernanke is terrified of the POG rising uncontrollably. Why should he care? No-one can put money “into” gold since for every buyer there is a seller who gets paper money. It is a sidewhow.
May 11th, 2010 at 5:36 pm
So as an American, are you better served by our Government and it’s administration to devalue your dollar and savings, while “growing” the value of the S&P, or by rather by keeping the value of your dollar steady?
You can’t devalue to prosperity. Which is exactly what we’ve tried to do year after year.
May 11th, 2010 at 5:51 pm
@ Cognos,
As Zero Hedge says, the probability of us surviving 500 years is zero.
It’s just a matter of which investment vehicle make sense in the time of extraordinary money printing.
I’m not married to gold. I’d be happy to dump it when it is 1:1 with Dow.
May 11th, 2010 at 7:35 pm
@panchog: Two things –
One: People like cognos doesn’t give a rat’s ass about what happens in “500 years”. Heck, he doesn’t even care about what happens in one year. It’s all about him.
Two: People like cognos don’t care about “us”. Got it?
The end.
May 11th, 2010 at 7:37 pm
It’s what everyone’s trying to do now, Homer. It’s a race to the bottom. On your mark, get set……..
May 11th, 2010 at 8:57 pm
Well, he is the one mentioned 100 – 500 year data!
Anyhow, I’m not here to dismiss him or anyone else. Nonetheless, ignoring the 10-20 year cycles seen in the chart above is just silly. We are in the gold bull market, not because the gold bugs made it so, but because of the world-wide Kaynesian economics of “Print, baby, Print.”
May 12th, 2010 at 6:30 am
Cognos,
you are throwing numbers around like crazy without any coherence and picking time periods that suit you. I wonder why you chose your nick name as having something to do with “knowledge” at all.
FYI – Since Jan-1985 the S&P TR index is up 12.9x, and it assumes not only that dividend is paid, but also reinvested for more compounding – but it is far away from 50x. Without dividend it is up 8.9x in the same period.
Since Jan-1970 the S&P500 TR is up 45,5x and gold is up 28.9x, which makes your point right since 1970. But this assumes you always reinvested your dividends and never got stopped out etc. (I bet the “real world return” in stocks is much lower).
May 12th, 2010 at 12:57 pm
Panchog — Ah, the “500 year” arguement. So we’re all going “back to gold” sometime in the next 500 years? 1) I call bullshit. 2) You WILL NOT hold onto your gold in those situations.
Dumb academic type like to say that “gold” would protect you from Weimar Germany. But it clearly would not. It would’ve simply been taken from you.
IvoZ — Fair points on the numbers correction. If you took the early 80s market bottoms (82, 83) SPX would be up 40x. With gold up 50%. My point was a rough one. Remember riskier single stocks are up MUCH MORE than the indexes. So good stock investments are easily up 50x over the period. Again, gold is 4% annual over the long-term. A piss poor asset.
May 12th, 2010 at 2:40 pm
[...] http://www.ritholtz.com/blog/2010/05/spx-priced-in-gold/ [...]