SP&500 to Gold Ratio. Will stocks outperform Gold this decade?

25 mar 2022

This is a very important reading to long-term investors and wealth managers. The simple S&P500-to-Gold ratio goes as back as 1889 (!) and displays in the most accurate way the relationship of stocks to the yellow metal over the decades.

As you see, every (approximately) 35 years, there is a Full Cycle where initially Gold outperforms S&P500 (SPX) in a periods that lasts roughly 11-13 years but then S&P enjoys a strong long-term rally against Gold, which typically lasts for 20-25 years.

What tends to be the most accurate indicator that confirms the rally of S&P against Gold is the 1M (monthly time-frame) MA100/ MA200 Bullish Cross. This is when the monthly MA100 (green trend-line) crosses above the monthly MA200 (orange trend-line). This Bullish Cross has taken place 3 times in past decades and all of which ended with strong rallies.

The Cross took place more recently in August 2020. S&P500 had already been outperforming Gold since mid 2011, but took a pull-back in late 2018 (as Gold started its new Bull Cycle) and resumed the uptrend in March 2020 after the Fed increased the money supply and issued trillion dollar rescue packages to support the economy from the COVID lock-down.

As a result, this analysis shows that S&P500 will most likely outperform Gold in the next 10 years. The ratio can go as high as 8.00 - 9.00, which is below the 2.0 Fibonacci extension from its most recent Higher High before the Bullish Cross. The reason we pick this value as a top is because all previous Tops follow a decreasing rate, being on the 2.5 Fib, 3.0 Fib and 3.5 Fib respectively as we go back in time.


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