Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold 2014 Up 70% or Stocks Down 40%?

Commodities / Gold and Silver 2014 Dec 09, 2013 - 06:04 PM GMT

By: Ned_W_Schmidt

Commodities

As we to prepare for the arrival of a new year, 2014 for those not keeping track, we should take time to consider reality. One part of that is to reconsider some well grounded advice: Past performance does not predict future performance. 2013 has clearly been the year of the equity fantasy, and one not enjoyable for Gold investors. An investment world focused on TWTR and bitcoins is one in which the Greater Fool Theory again dominates. With year end rapidly approaching, now is the time to consider what the numbers tell us, not the investment hype popular in the media.


Ratio of Gold to S&P500 1945-2013 Chart

Value View Gold Report

The above chart portrays the ratio of the price of $Gold to the S&P 500 back to 1945, or nearly 70 years. Solid black line is the average of that ratio. Last bar on the right is the current situation. At the present, the ratio of $Gold to the S&P 500 is at the lowest level experienced since 2008. $Gold ended that year at about $865. One should have been buying Gold at that price, and that is what it is now suggesting.

Portrayed in the bottom chart are the implications of using the above ratio's history to assess the potential for $Gold and U.S. equities. If we use the average ratio in the above chart and assume that the S&P 500 is correctly priced, then $Gold is under valued by ~70%. If we assume that $Gold is correctly priced, the S&P 500 should fall by ~40%. Of course actual results will differ from these estimates, but the relative situation is fairly obvious.

An investor should be adding Gold to portfolios and reducing exposure to U.S. equities.

Valuation is not a market timing tool. It does not tell us when market will turn, but rather when conditions are conducive for a turn to develop. For help with that tricky part of the problem, let us consider some important events in the $Gold market this year. In late June $Gold made a bear market low. In October, as should have been expected, $Gold made another important low. October is the month when sales are normally made by funds to take losses to offset gains that will be passed out to investors. That October low should have been the final test for $Gold.

However, end of year window dressing and group-think have been stronger forces this past month than perhaps should have been the case. With equity mania in full bloom, portfolio managers have been dumping Gold and Gold stocks so they do not show either on year end financial statements that will go to investors. That tendency was made worse by the herd's belief that taper was imminent and that event would cause the dollar to rally. The combination of these two forces created an additional important low last week, at about $1,218. (Note: The patterns in Euro Gold and Pound Gold are somewhat more severe due to currency appreciation, but the situation should be viewed as similar.)

With $Gold deeply under valued relative to paper equities and the oversold conditions brought on by irrational fund selling, $Gold has been set up to benefit from the January effect. January is the month when those assets that have been pummeled in the previous Fall stage a recovery. $Gold could conceivably move by a significant amount between now and the third week in January.

As we close, remember to take a moment of silence on 23 December to remember back 100 years to when the dollar had value. On that day in 1913 the Federal Reserve came into being. Ever since that event the value of the dollar has been falling and the economic instability of the world has been rising. When an experiment has failed over a complete century, has not the time for change arrived?

By Ned W Schmidt CFA, CEBS

Copyright © 2013 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in