Thursday, December 11, 2014


This work is Part 3 on the Gold-to-Silver ratio and the Gold to whatever else ratio.

Here is the one graph many want to see.

Right now, hardly does it take any of a share of the S&P 500 to buy an ounce of gold.

Gold is so done. There are no drivers for gold.

Anyone who has bought gold since the end of Q3 2011 has lost buying power, that is three years running. Gold is a horrible speculation today. Since hitting a peak at Q3 2011, True Gold (discounting for inflation) has fallen -43.3%, falling at a yearly rate of -16.0%.

In the long bull run between Q3 1974 and Q3 2000, True S&P 500 grew at a yearly rate of 7%, growing a full 484.3%.

In the long gold run from a Q3 1976 to Q3 2011, True Gold grew at less than 1% a year, coming in at a scant 0.5% a year for a total of 19.6%, from $87.11 to $104.18. In the same period, True S&P 500 grew almost 4 times as fast, albeit at 1.8% a year for a total of 95%, from $78.12 to $152.33.

Easily then, compared to gold, even with the crash of 1987 and the following bear that ended in Q1 1988 (-32.2% annual decline), and the much longer bear markets of 2000-2002 (-21.7% annual decline) and 2007-2009 (-35.9%), stocks were still a much better deal than gold over the period 1976 to today.

The 2000s gold rush has brought out every gold bug who at long last felt vindicated for all of their ranting against financial asset-backed cash vs their favored gold-backed cash. That rush is over and has been three years.

Today. Bloomberg quoted spot gold at US$1,226.85, but in true terms, erasing the effects of inflation, True Gold (gold discounting for inflation) traded 15.3% below its long run average price, an average price billowed by the huge spike that happened between Q3 1976 and Q1 1986. Removing spikes from the average, and today, True Gold closed 2.5% below what likely is the long-run normal average for True Gold.

Those who take to the Internet proclaiming to be bullish on gold and encouraging others to buy gold should get forced to give answers.

  • What are the drivers for gold? 
  • Where is all the buying power coming in to buy gold? 
  • Where are the latest winning bidders outbidding the previous ones pushing up prices?  

Worldwide, the primary purchase and use of gold is jewelry. At least four times as much gold goes into jewelry as it does into rounds.

  • How are economies everywhere? 
  • Are true incomes growing so there are more jewelry buyers with more buying power?  

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