SP-500/ Gold - #ValueCycle Analysis
*Note that the vertical price axis reflects the number of ounces of gold required to purchase 1 share of the SP-500
*I understand there is a lot going on with this chart, but bear with me as i walk you through it (see worked example below)
Macro Analysis: Lower Chart
- After the lunacy of the tech wreck in the late 90's into 2000 the ratio peaked at just shy of 5.5 oz to 1 share of the SP-500 (obviously this would be more pronounced if we were looking at the Nasdaq)
- From the peak in 2000, the value of the SP-500 has plummeted largely unabated until 2009 - 2011, finally hitting a low of around 0.5 oz at the time of the financial crisis and the introduction of Central banking QE,
- This means that had you utilized this pricing/ entry method you would have been able to sell your shares at 5.5 oz and buy them back for a 1/10 of the price (illustrated with the red arrow)
- This eventual bottom also coincided with the 90% bubble fib retracement level (a useful level, few people utilize)
'Near-term Analysis: Upper Chart
- As you can see the SP-500 has stalled at the 38.2% fib retracement (possibly a dead cat bounce on the way lower)
- This, coupled with the broader macro economic outlooks (weaker economic data, weaker manufacturing and greater Geo-political tensions) makes a strong case for this to result in higher gold prices (thus a lower ratio of stocks to gold)
- I think it quite likely that the Fed will have their hand forced and will resume QE or some other form of stimulus to prop these markets up, but the beauty of this system is that you are pricing the assets in a more stable, non-inflationary numeraire, one that under such QE/ central bank intervention would thrive (thus revealing the true depreciation in value of the underlying)
Putting it all together: An example
- E.g. Sell your 10 Shares of SPX at 5.5 oz (red arrow) = 55 oz ($250/ oz) = $13,750
- Re-enter stocks at the green arrow for 0.5 oz/ share = 110 share of SPX (55/ 0.5) = $104,500 (55 oz times $1900/ oz)
- Convert your shares back to gold (2nd red arrow) at 2 oz / share = 110 shares times 2 oz/ share =220 oz = 220 oz times $1520/ oz = $334,400
Total return = 2432%
But more importantly, you have been able to leverage your existing holdings to acquire a non-depreciating asset, in this case gold (but there are many, many different options available to those who can properly utilize this strategy).
If you liked this idea, let me know, give me a follow, thumbs up and follow my Twitter so you never miss a trade/ investment ideaa
*Note that the vertical price axis reflects the number of ounces of gold required to purchase 1 share of the SP-500
*I understand there is a lot going on with this chart, but bear with me as i walk you through it (see worked example below)
Macro Analysis: Lower Chart
- After the lunacy of the tech wreck in the late 90's into 2000 the ratio peaked at just shy of 5.5 oz to 1 share of the SP-500 (obviously this would be more pronounced if we were looking at the Nasdaq)
- From the peak in 2000, the value of the SP-500 has plummeted largely unabated until 2009 - 2011, finally hitting a low of around 0.5 oz at the time of the financial crisis and the introduction of Central banking QE,
- This means that had you utilized this pricing/ entry method you would have been able to sell your shares at 5.5 oz and buy them back for a 1/10 of the price (illustrated with the red arrow)
- This eventual bottom also coincided with the 90% bubble fib retracement level (a useful level, few people utilize)
'Near-term Analysis: Upper Chart
- As you can see the SP-500 has stalled at the 38.2% fib retracement (possibly a dead cat bounce on the way lower)
- This, coupled with the broader macro economic outlooks (weaker economic data, weaker manufacturing and greater Geo-political tensions) makes a strong case for this to result in higher gold prices (thus a lower ratio of stocks to gold)
- I think it quite likely that the Fed will have their hand forced and will resume QE or some other form of stimulus to prop these markets up, but the beauty of this system is that you are pricing the assets in a more stable, non-inflationary numeraire, one that under such QE/ central bank intervention would thrive (thus revealing the true depreciation in value of the underlying)
Putting it all together: An example
- E.g. Sell your 10 Shares of SPX at 5.5 oz (red arrow) = 55 oz ($250/ oz) = $13,750
- Re-enter stocks at the green arrow for 0.5 oz/ share = 110 share of SPX (55/ 0.5) = $104,500 (55 oz times $1900/ oz)
- Convert your shares back to gold (2nd red arrow) at 2 oz / share = 110 shares times 2 oz/ share =220 oz = 220 oz times $1520/ oz = $334,400
Total return = 2432%
But more importantly, you have been able to leverage your existing holdings to acquire a non-depreciating asset, in this case gold (but there are many, many different options available to those who can properly utilize this strategy).
If you liked this idea, let me know, give me a follow, thumbs up and follow my Twitter so you never miss a trade/ investment ideaa
