A lesson in history: the S&P 500/gold ratio

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By Erik Norland

Over the past century, US stocks have performed exceptionally well, increasing in value 221 times. But there’s a catch.

That’s a 221-fold increase against the US dollar, and the US dollar has lost over 95% of its value over this period due to inflation.

So what would happen if instead of looking at stocks listed in dollars, we instead repriced stocks in gold?



Over the past century, gold has almost kept pace with stocks, but there have been periods when stocks have performed much better than gold, including the periods 1942-1966, 1981-2000 and 2011-2021. . Periods of stock outperformance have had two things in common: stable inflation and a stable world order.

Other periods have not been so favorable for equities versus gold. Stocks fell 95% against gold between the late 1960s and early 1980s, marking a period of rising inflation and geopolitical uncertainty. When the United States withdrew from Vietnam in 1973, the Arab oil embargo drove up oil prices and plunged the world economy into a recession. Later in the 1970s, the Iranian Revolution, the Soviet invasion of Afghanistan, and the Iran–Iraq War triggered a second oil crisis.

Similarly, stocks fell 89% between 2000 and 2011 in the aftermath of 9/11, the US War on Terror and the global financial crisis.



Over the past twelve months, the world seems to have entered a new period of uncertainty following the departure of the United States from Afghanistan, the Russian invasion of Ukraine and rising tensions in the Taiwan Strait. . And all of this has happened as inflation is also soaring around the world. The question is: could we be on the verge of another period where stocks fall against gold?

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

Sallie R. Loera