The Felder Report
FEB 12, 2018
It will come as no surprise to you that gold and the S&P 500 have had a relationship that has held to a tight ratio over the course of years. Over the past five or so, it has moved in practical lockstep. Until 2018. Stock suddenly moved way, way out of range. Given how rigidly this ratio has held until now, it appears gold has a lot of ground to make up, and fast:
Going back further yields another tantalizing valuation comparison.
Looking back to that 2001 low in gold it’s clear that, at the time, it was very cheap relative to the broad stock market. Today, you could argue it’s now even cheaper. Over the past 35 years or so, gold and the S&P 500 have essentially traded around parity. Should they see some sort of mean reversion now there are $1,300 points to be made up one way or the other.
Generally, I believe it’s important for investors to have significant exposure to real assets like gold at all times if only for the purposes of diversification. Today, there is a good technical case, as well as a fundamental case, for investors to overweight the precious metal.