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With the Crash in Stocks, Are They Now a Better Value Than Gold & Silver?

Jeff Clark, Senior Analyst, 
MAR 26, 2020

The Covid-19 crisis has been brutal to the stock market. The S&P 500 has fallen 24% so far this year. The Dow is down 26.5%.

Perhaps surprising to some investors, gold is actually positive on the year. It ended 2019 at $1,514 an ounce, so as I write it’s up over 6%.

Does this mean that stocks are now on sale and trading at a discount? Does it maybe even signal that it’s time to sell gold and buy common stocks?

To answer that let’s look at the ratio of gold and silver to the S&P 500.

Gold & Silver Ratios to the S&P 500

Ratio analysis has its limitations, but it can be instructive when two asset classes reach an extreme reading.

In the case of gold and silver, we divide their price by the S&P 500 and see what it tells us. If the ratios are high, then stocks are the better buy. If the ratios are low, then gold and silver are the better value.

This chart shows the ratio of gold to the S&P 500 from 1970 through Wednesday March 25. The current ratio is highlighted in pink, with prior highs noted as well.

Reversal in Gold/S&P 500 Ratio Has a LONG Way To Go

If you squint you can see the recent “jump” in the ratio. On a historical basis, this clearly indicates gold is hugely undervalued relative to common stocks.

In fact, to match prior highs, the ratio would have to rise…

  • two-and-a-half more times to return to the 2011 peak
  • over three times to reach the 1987 high
  • over 11 times to match the 1980 peak.

Gold prices will have to rise a lot higher and equity prices fall a lot further before this ratio tells us it’s time to sell gold and buy stocks.

In other words, despite the activity in the markets so far this year, gold remains a much better bargain than common stocks and is the better buy.

Here’s the ratio of silver to the S&P 500 (through March 25).

Silver/S&P 500 Ratio: No Change

As you can see, with silver down about 20% on the year, the ratio has registered no visible change.

We’re confident this ratio will climb substantially. If we’re right, it would have to rise…

  • nearly six times to match the 2011 peak
  • over 16 times to reach the 1983 high
  • and over 78 times to match the 1980 peak

Silver is clearly the better bargain here. Stocks, relative to silver, are not. Silver’s upside potential is enormous.

Updated Gold/Silver Ratio

Here’s a quick look at the gold/silver ratio (gold price divided by the silver price). The yellow box shows the all-time high. It’s hard to distinguish on the chart, but as of March 25 the ratio is 111, still hovering near never-before-seen levels.

Gold/Silver Ratio Still At Extreme Levels

The difference between the silver price and the gold price has never been greater. This highlights the once-in-a-lifetime-opportunity available in silver right now.

As we’ve shown before, silver doesn’t necessarily do well during the midst of stock market crashes. But with the amount of unheralded currency printing currently underway, silver will dramatically outpace gold’s returns whenever this ratio reverses. Frankly, Mike and I think it could be breathtaking.

  • It’s hard to overstate just how much potential there is for gold and silver to climb relative to stocks. And how much more silver will climb than gold.

My advice is to make sure you’re positioned for it.

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