GLD vs. SPY Relative Price

click for larger graphic

Source: Solari Report, Yahoo Finance

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Here is an interesting observation: The value of the SPDR Gold Trust (GLD) is now worth more than the SPDR S&P 500 (SPY) representing the full index. (This refers to the ETFs and not the underlying value of the SPX and Gold).

Note that ETFs are not fully representative of the underlying indices valuation, and that can lead to some odd permutations. For example, Apple (AAPL), a member of the S&P500 Index (SPY) and Nasdaq100 (QQQ), is worth more than both ETFs combined.

Back to Gold: State Street Global Advisors, which administers the ETFs, puts the value of Gold ETF at $76,673.81M versus the S&P 500 ETF at $74,381.35 M.

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What might this mean?

Lets look at the two charts on this page: The one at top shows the relative moves of the two indices. They have diverged, heading in separate directions, and are now extremely far apart. That valuation difference is reflective of sentiment reaching an extreme. This is somewhat reminiscent of back in October 2002, when the Pimco Total Return Bond Fund surpassed the Vanguard S&P500 fund to become the largest mutual fund (See these Contrary Indicators 2000 – 2003 Bear), and could have some contrary value.

The second chart, at bottom, shows a simple ratio of SPY to GLD. It has now dropped below the March 2009 levels. That might also be constructive for a reversion (ie, bounce in SPY and drop in GLD)

It could be a contrary indicator, as the two indices have moved to extremes. Equity markets are now extremely oversold, while Gold has moved parabolically. Some mean reversion would appropriate around now.

One caveat: The MACD reading of this ratio was far more deeply into the red back at the 2009 market lows. That suggests this reading can get further oversold.

Perhaps this is supportive of (warning: selective perception ahead) an oversold bounce that ultimately rolls over, taking this ratio to greater extremes.

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SPY versus GLD Ratio

click for larger graphic

Source: StockCharts

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Psychology, Trading, Valuation

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.

25 Responses to “Diverging ETFs: What Are GLD & SPY Telling Us ?”

  1. [...] at The Big Picture, Barry is looking at the GLD vs SPY story and taking that gold-to-stock ratio back to the March 2009 lows for some perspective.  Says Barry: It could be a contrary indicator, [...]

  2. kevinhernandez says:

    Gold started diverging from SPY at the end of QE2

  3. farmera1 says:

    I look at precious metals (PM) as insurance against dumb government decisions. Cut taxes, start wars, hold interest rates at zero for extended periods, what could possibly go wrong for the economy???? So in early 2000 started investing significant amounts in PMs.

    But when things start going parabolic , I get nervous.

    I’ve unloaded a little gold, but me thinks it is time to start unloading more with the hope there will be other buying opportunities down the road, since none of the significant problems have been fixed and apparently can’t be fixed. But my biggest issue is what to do with the proceeds. I have the same issue with farm land. It has gone crazy too just not sure where one would take the proceeds to invest.

    What is the next bigg thing. MAybe software, companies like Amazon/Apple/Google etc. and yes I know these companies aren’t thought of as software companies but to me they are. These companies are on the way to rule the world. But I think that train has already left the station. So in the meantime I still hold commodities and commodity related investments. But I’m getting nervous.

  4. speaking of ‘divergences’..

    it’s Curious, “webcams” seem to be a ‘Competetive Differentiator’ when to comes to something as prosaic as “Doggie Day Care” …

    http://search.yippy.com/search?query=Doggie+Day+Care+Webcams&tb=sitesearch-all&v%3Aproject=clusty

    “webcam” access, for the ‘Owners’ of GLD? not so much…

  5. ga082003 says:

    Here is a more relevant chart from 2000 till now.

    http://capital3x.com/?p=172

  6. Lukey says:

    My guess it is telling us that the market has completely lost confidence in our Government’s ability to solve our economic problems. There are long term trends in job creation, government spending, (the related) health care cost inflation, the dollar/gold ratio and some short term trends, productivity, labor force participation, credit availability, that are all going in the wrong direction. The market views this as ultimately bad for the economy and, with interest rates at historical lows, the preferred refuge has become gold (and to a lesser extent other hard assets). I would expect some reversal toward the mean, but, until these economic trends come to be perceived as less ominous, it is unlikely that the equity markets will making new highs.

  7. HEHEHE says:

    I think the S&P chart is telling us we are heading or are already in a recession and as a consequence stocks as a whole are overvalued and still have a ways to go downward. The rise in gold is investors losing even more faith in fiat currencies as they anticipate the central banks around the world will try to print even more money to raise asset prices. Looks like Ron Paul’s going to be making a lot of money this year.

  8. bram says:

    sell GLD, buy SPY… obviously.

  9. AHodge says:

    i believe its correlated to the banana republic financial oscilator
    i cant go long gold here
    if i had balls which i dont here i would look to short

  10. wally says:

    The current meme clearly is that we are in a recession and gold is not a bubble but can go higher.
    The current meme always should be mistrusted.

  11. cthwaites says:

    Another thing to think about….big divergence of gold miners vs gold physical (check GDX and GLD).

    Why? Many of the major miners (Ashanti, Newmont, Barrick, Goldcorp) are off limits to Socially Responsible investors….which includes large pension funds, state and local government and endowments…thing CALPERS etc . Seems odd that the correlation between producers and product are so conflicting. So the run on gold may be partly explained by lack of choice of how to buy it which may suggest one or the other is going to come back into line.

    And a final thought….when you really, really need to have gold it’s going to be a 1933 situation. You will need to i) go to the custody bank ii) hand in your stock cert and iii) receive gold in return. Good luck with that if with a large western government decides that you can’t own the stuff (Gold Reserve Act of 1940). Explains why the Swiss gold ETF (ZGLD) has outperformed GLD and why 10 oz ingots (easy to carry if you are hightailing out of Damascus) trade at a premium

  12. zdog says:

    Trust.

  13. Bob A says:

    buy low. sell high.

  14. arbitrage789 says:

    I certainly wouldn’t buy gold right in here. But GDX (gold mining ETF) is another question. It could still do O.K. if gold falls at the same time that the S&P500 rises.

  15. Greg0658 says:

    there is NO storage of value except in the faith of the next generation of boys & girls who will be your:
    slaves ….. I mean consumers / soldiers / laborers / and the bearers of the next generation

  16. jimcos42 says:

    I’m thinking that looking back only as far as 2000 may not be enough of a Big Picture.

    The Dow/Gold ratio reached 1.0 in 1980. Currently it’s at about 5.8.
    See the chart at http://www.sharelynx.com/chartstemp/DowGoldRatio.php

    Given the trend slope of trends, an extreme ratio these days would be 2.0. And that suggests a combination that rests between about 5,500 gold and 3,800 DJIA.

    That said, one could also argue that we’re already in the zone where the relative performance of Dow-to-gold could shift back in favor of the former. Again, adjusting for the trend slope, we’re at about where we were in the early 1930′s and not far above 1974.

    But I am rooting for gold to go higher (looking for a day, maybe, where it goes up $100 or more) with a concurrent stock collapse, and we get a truly generational buying opportunity for stocks.

    Disclosure: I own no gold and am not planning to buy any.

  17. [...] The divergence between $GLD and $SPY is breathtaking.  (Big Picture) [...]

  18. market_disciple says:

    Interesting observation and trading idea, BR.

    Coincidentally, I liquidated my precious metals position from my portfolio last Friday and sold put premium on the Dow on the same day, betting for a short term bounce on equities.

  19. nofoulsontheplayground says:

    One of the indicators I use in my charting shows something I call a “Bear Shake” on the GLD daily chart.

    Typically this is a pretty reliable indicator, although it has not been as reliable with GLD as with just about any other equity or commodity.

    With the strong overbought GLD chart and oversold equity chart, it would make sense for this bearish indicator to work and for GLD to drop in a multi- week correction so Gold can back-test the $1650-$1700 area.

  20. Christopher says:

    Paper vs. Paper

    It is not Gold.
    It is GLD.

    If you can’t touch it you don’t own it.

  21. Christopher says:

    ga082003 Says:

    August 23rd, 2011 at 7:43 am

    Here is a more relevant chart from 2000 till now.

    http://capital3x.com/?p=172

    ——————
    Indeed.
    Thank you.

  22. MT1 says:

    I dunno about viewing it as a “buy SPY sell gold” moment.

    A recent article I read concerning the Euro crisis (WaPo or NYT, not sure) quoted an anonymous German source as saying “we’re safe, we never sold off our ~3,000 ton gold reserve like the other Euro members.” Imagine the market crashing AND Germany being forced to liquidate their gold reserves…

  23. bram says:

    gold…. I suppose if you are willing to entertain the possibility of the dollar collapsing, you should also consider that the US could sell Alaska to clear up the deficit, right? I mean we just bought it 144 years ago and it’s appreciated quite a bit since then.
    I mean, if you’re going to get crazy and think of the US like a household (balanced budget, gold standard, etc..) then you have to consider the possibility that we would sell some assets, no?
    How about instead of leasing oil drilling rights, we just sell those puppies?
    Etc, etc.
    If we’re going to go there, then let’s go full tilt….!!

  24. market_disciple says:

    Gold just made an intraday reversal yesterday after briefly touching $1,900. Long E-Mini Sep (ESU11) and short Mini-Gold Dec (YGZ11) (1:1 ratio) turned out to be an excellent short term trade, if not a longer term trade, while the relationship between equities and gold is reverting to its mean.

    Thanks, BR.

  25. [...] Vancouver, I titled one section “Gold is a Trade, Not a Religion.” We also noted that Diverging ETFs: What Are GLD & SPY Telling Us ? (August 23rd, [...]