Stocks Priced in Gold Now Below March 2009 Lows: Why This Matters

Includes: GLD, SPY
by: Kevin Parker

Amazing action in the markets in recent weeks, but if you're only focused on nominal stock values, you are missing half the story. The Dow/gold and S&P 500/gold ratios are dropping like rocks.

Dow / gold ratio (click to enlarge images):

S&P 500 / gold ratio:

Some investors argue that these ratios are meaningless. I couldn't disagree more. These are very telling ratios, and in an environment when currencies are being printed by the world's central banks, viewing stocks value with relation to gold which has served as money for thousands of years, is a very useful tool. Does it tell the complete story? No, but it's a useful tool to monitor.

Moreover, gold is different than silver in that gold is held by the world's central banks. Silver is not. Gold is insurance against a potential collapse in the world's financial system, and this is why gold is going up. The cost of insurance is increasing. Silver is more tied to industrial uses, and I expect gold to outperform silver handily in the short and medium term.

Stocks have been deflating in terms of gold since 2000 and in that sense, the bear market is clearly intact. We're hitting ratios, as shown above, that have not been hit since the 1980's. These are very interesting times in the global markets in stocks, currencies and gold.

Disclosure: I am long GOLD.