Gold: Getting Personal

Interesting chart of the S&P vs. gold going back a few decades:

SP_Gold

Joe Weisenthal’s take:

You can see that even with the recent upturn in stocks, relative to gold, gold has crushed stocks since 2000.

Arguably, 2000 represented a peak in belief in the capabilities of humans. The internet inspired all kinds of crazy optimism about how humans would re-shape the world for the better. The ebullience spread beyond the net. There was, for example, optimism about newways of transporting humans: Fuel cells! Segway!

Of course, the bubble crashed. Then we had 9/11. Then we had two wars. Then we had the housing implosion. Then we had the financial crisis. Then the horrible recession. Then the European crisis and the debt ceiling and everything else.

In other words, we had a series of a events that, for good reason, shook our faith in humanity. During this time, people thought about history on a large scale. And gold, having been used as a money for thousands of years, did pretty well, especially relative to stocks, which represent companies made up of humans.

So ultimately, the decline of gold and the rise of stocks is a big trend that everyone should cheer.

The huge corpus of economic research, which has informed the US’ efforts to stimulate the economy, is not a pile of garbage. You can do a lot without blowing things up, as the goldbugs claimed would happen.

And more broadly, this represents a breaking of the fever, and perhaps a return to thinking that humans aren’t such a horrible disappointment.

With gold’s recent declines, analysis such as that written by Weisenthal is all over the place.  Gold really gets personal with people.  For many, its strength or weakness has the ability to validate their economic and political views.

From a strictly trend following perspective, the S&P vs. gold relative strength relationship is potentially significant because of its history of providing long-term trends favoring one or the other.  If this ultimately does result in a major inflection point for the S&P vs. gold relationship, there will be important implications for those of us employing tactical asset allocation strategies in the years ahead.  Admittedly, simply observing the relative strength relationship between the two provides much less intrigue than can be found on talk radio or any number of other sources (but that can be a very good thing for investors who are just looking to make money).

HT: Business Insider

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