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?

GOLD S&P

Bloomberg

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.

GOLD S&P

Bloomberg

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