Gold Outperforming Stocks for a Decade

With Gold on the recent Cover of New York Times Magazine, we have some contrarians raising holy hell. I feel like now is as good a time as ever to remind ourselves that Precious Metals have been outperforming Equities for over a decade. The charts don’t lie. A May sell-off in Silver, or even Gold, hasn’t changed that. Take a look at this chart of Gold vs the S&P500. Has anything changed? Looks like a raging bull market to me. Just a nice little consolidation going back a couple of years that looks identical to the other ones.

The explosive action in this ratio while the Stock Market was getting decimated in 2008 and early 2009 created extreme overbought readings in RSI and it’s been working that off ever since in a very normal and healthy way. Anyone out there that would like to argue with me on this can bring it on. Nothing gets me going like conversation about Real Money vs Paper Money over a couple of adult beverages. So Instead of pricing this stock market in silly US Dollars, price it in real money and see what happens. Uncle Ben can’t print Gold bars right?

You can fight this trend in Precious Metals outperforming Equities if you’d like, but that just doesn’t make any sense to me. The short-term traders will argue and that’s OK. We all have our times frames. I believe the new question becomes, “OK, so now what? Gold or Silver?”. As we can see in this chart below, when we see Silver outpacing Gold, this is a positive for equities. This is for several reasons that include Silver being cheaper, more volatile, having more industrial use than Gold, etc etc.

The recent Silver destruction has brought this ratio back to reality, but the breakout has held and nothing on this chart is telling me otherwise. If you’re managing money and not doing ratio analysis, I think you are very much at a disadvantage. Nothing has changed in the big picture, but its always encouraging to watch Mr. Market knock some sense into some short term swing traders caught on the wrong side. Remember that the market is always it right and never cares what we think.


Related Posts:

Stocks Priced in Real Money (Dow vs Gold) April 28, 2011

Gold Prices (Inflation-Adjusted) April 19, 2011


Gold Mania in the Yukon (NY Times Magazine)

Uh-Oh: Gold on the Cover of NY Times Magazine? (BigPicture)