Gold Price & the S&P 500 Index: What Does The 20 Year Chart Suggest?

Normally a graph shows the price of gold or the S&P on the “y” axis and time on the “x” axis. But it is possible to plot monthly gold on the “x” axis against the S&P on the “y” axis. The result is a squiggly line connecting over 240 data points. In the graph below I see 5 zones or phases during the past 20 years – approximately defined as:

S&P_vs_Gold_1994_2014

Zone 1: Jan 1994 – June 2003. The S&P booms and busts and gold prices change very little.

Zone 2: July 2003 – December 2007. The “shock and awe” phase sends both the S&P and gold much higher.

Zone 3: Jan 2008 – December 2009: The “crash” phase sends the S&P down and gold prices are erratic.

Zone 4: Jan 2010 – December 2011: The “gold rally” phase sends gold up substantially while the S&P rises somewhat.

Zone 5: January 2012 – Present: The “paper era” where paper gold comes down hard and the paper S&P is boosted to all-time highs.

I think both the gold market and the S&P are at or near the end of their recent trends, so we should expect change:

a)   The S&P is at all-time highs, has been rising for 5+ years, and is over-extended by many measures. Sentiment is overly positive. It appears ready to fall or move sideways for some time. “Financial TV” will be disappointed.

b)   Gold dropped nearly 40% into its December 2013 low and is finally moving higher. Sentiment is still negative, but gold appears ready to rally. Gold “bears” and the bond market will be disappointed.

c)   We can assume the Fed wants the S&P to continue rising and gold to remain stable or drop lower. However, I think those trends are reversing. The Fed will be disappointed.

I have added an arrow indicating what I think the next phase of price movement is: gold up and the S&P flat to down.

S&P_vs_Gold_2_1994_2014

 

Time will tell.

 

In the meantime, read:
Stocks Heading For a Crash
The Entire US Gold Hoard Is Now Gone!
Gold Prices Benefit From Economic Sins
Cusp of a Nuclear Meltdown

 

GE Christenson  | The Deviant Investor

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