Buy Gold, Sell the S&P

 

Buy low, sell high!  As of today, September 3, 2015, the better choices are buying gold and selling the S&P 500 Index and relevant stocks.

Why?

Examine the graph of the ratio of Gold to S&P 500 Index for the past 25 years.  The ratio is low now and likely will correct higher.  I think gold will move higher and the S&P will move lower.

G-GC to SP

Examine the graph of the S&P – 20 years on a log scale.  The Index has broken the red support line dating back to 2009.  This is a “danger zone.”  In addition, internals are weak, moving averages have turned lower and crossed each other, and some global stock markets have already crashed.  I think it is likely the S&P moves much lower in the next six months.

G-SP

Examine the graph of Gold – 20 years on a log scale.  The three trend lines, as I have drawn them, show that gold is at the low end of the range and over a third lower than the center line which indicates the average of the long term exponential trend upward.  I think gold will climb much higher in the next several years, and that the gold low in July will hold.

G-Gold

Could the S&P burst higher and gold be crushed again?  Certainly!  “Print” a few trillion dollars of digital “money” and buy S&P futures while selling short gold contracts and the S&P will levitate while paper gold prices drop.  But is that likely?

My estimation is that various forces will nudge the S&P higher and occasionally levitate it, but deflationary forces will overwhelm both markets and central banks, and global stock markets will continue their downward path.  Eventually people and investors will realize that “money” is now debt owed by a government, central bank or corporation that may not be solvent.  When confidence in the viability of debt based fiat currencies and confidence in the ability to repay debt diminishes, people will flock to gold investments.

My estimation:  S&P down for months, maybe several years, and gold up for years!  If not, then these (no longer relevant) ideas may still be true:

  1. Buy stocks for the long term. They always go up.
  2. Buy real estate – house prices always go up.
  3. Gold is useless and a relic of the past.
  4. Don’t fight the Fed.
  5. Trust Wall Street brokers as they have your best interests at heart.
  6. Politicians will take care of the middle class.
  7. Hope and change.

These are my opinions.  Do you own analysis and make your own choices.

Test:

  1. How much gold should you own knowing that the Federal Reserve is in charge of the money supply?
  2. How much gold should you own knowing that gold protects purchasing power and central banks want to devalue their currencies?
  3. How much gold should you own knowing that consumer prices rise during times of war?

Read:  Why the Next Crisis Will Be Far Worse than 2008

 

Gary Christenson

The Deviant Investor

 

4 thoughts on “Buy Gold, Sell the S&P

  1. Paper Gold / Physical Gold RATIO is > 200:1 according to Egon vonGreyerz:

    This Is Going To Shock The World

    The paper gold market could implode at any time. At the Comex there are more than 200 ounces of paper gold issued for every once ounce of physical. When the paper holders ask for delivery there will be no gold available and the Comex will likely default.

    In the interbank market it is much worse. Most banks who sell paper gold have no physical gold at all. So they have two options — borrow the client’s gold or pay in cash. And this will eventually this will be another contributing factor to the collapse of many banks during the coming chaos.”


    • Tyler Durden (ZeroHedge) Something Just Snapped At The Comex
      This means that what was already a record dilution factor, with over 200 ounces of paper gold claims for every ounce of deliverable gold, just soared even more, and following today’s 8% drop, there is now a unprecedented 228 ounces of paper claims for every ounce of deliverable “registered” gold.

      Note: The chart accompanying this article just screams “take delivery”! If you don’t, one of the other 227 “owners” of that same ounce of gold will . . . and you’ll be out in the cold without your gold. Or you can just buy physical in the first place and there will be no questions as to ownership.


  2. Gary, Unfortunately the gold/sp ratio may go up not because gold goes up but because the sp goes DOWN. My best guess is that indeed the major averages are due for a big time correction and because we’re in a deflationary environment, Gold will go down over the near term. By 2017,we will get inflation and the $ value of Gold will rise-big time, IMHO. Also if your trend line for gold touches the LOW in 2005, the price of Gold has in fact broken the trend line. Thanks for your posts- I enjoy them.


  3. My key question is this: “How much more can the Central Banks leverage their DEBT/Hard ASSET Ratio? They are already over their heads with a 20 -25/1 ratio. Printing more money, investing in more risky derivatives etc will only further increase putting them into BANKRUPTCY. A 6-7 % fall in their hard assets will do this – then what? Then Gold will be GOLDEN.


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