S&P 500 & Gold; Who Treats You Better?
J. Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many seem to perceive a struggle between metals and stock indices, as though investing in one excluded the other. As mentioned the other day in our comparison to the DJIA, it’s as if there’s some sort of irrational love/hate relationship with gold. Today we’ll take a look at gold’s value against what is probably the darling of many investors and traders alike, the Standard & Poor’s 500 Index [Trades as SPDR S&P 500 Trust (NYSEMKT: SPY) and iPath S&P 500 VIX Short-Term Futures ETN (NYSEMKT: VXX) among others].
The S&P 500 is one of the best barometers of investor sentiment of all the indices. Note that it is not necessarily an excellent barometer of value, since stocks do not necessarily indicate value. They indicate investor mood or sentiment in conjunction with perceived value.
Gold has proven to be a barometer of sorts as well, but seems largely inconsistent in this regard. As it’s grown in popularity, it’s often moved in lockstep with various vehicles. Once seeming to always move inversely with the U.S. dollar, now it often rises with the dollar as investors increasingly perceive it as a viable alternate safe-haven. For instance, with recent euro struggles, as the euro dropped in value, the dollar and gold both moved upward. However, it seems that if stocks move northerly with the dollar, then gold moves either sideways or downward, as we’ve seen recently.
Consider the following chart that compares gold with the S&P 500. While it’s clear that there’s no direct correlation, we can observe annual performance. Note that there were inverse movements in August, when optimism shifted to pessimism, and again in late February as confidence in the markets grew following a couple of months of climbing toward previous highs in the S&P 500.
Our task today, however, is to simply examine the value of the S&P 500, as compared to a year ago, in an effort to perceive the overall trend. On April 11, 2011, the S&P 500 closed at 1324.46. A year later, on April 9, 2012, it had reached 1378.24, a gain of 53.78 (4%). Gold, on the other hand, closed at 1455.60 on April 11, 2011 and closed at 1641.30 on April 9, 2012, gaining $185.70 (12.8%) over a one year time period.
With this in mind we can clearly see that gold was the superior long-term investment during this time period, netting investors 8% more gains in terms of dollars. With current CPI (according to 1990 formula) in the 5% neighborhood, holding the S&P 500 over the last year would have resulted in a net loss in value of about 1%, whereas gold would have realized a net gain of over 7%.
Again, while many show disdain for the yellow metal, some even screaming for investors to bail out of gold, it’s clear that the Midas’ metal still outshines the market. With the S&P recently sideways after an upward trend, and gold having taken new lows for the year, we should expect a reversal in the not-too-distant future. Even if the S&P 500 does continue performing well, the economic world climate would indicate gold's rise in the near future as well. Gold can be traded via SPDR Gold Shares (NYSEMKT: GLD) and Sprott Gold Trust (NYSEMKT: PHYS) as well as other vehicles.
For your prosperity,
J. Keith Johnson
The Gold Informant
The Gold Informant is a Goldco Direct affiliate writer.
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