120 Years of Stocks and Gold

Some notable deviations

We saw yesterday that the S&P 500 grows exponentially. However, other things in finance also grow quickly over time. That allows for some nice ratios that can tell us interesting things, such as when the S&P 500 is divided by the price of gold:

Sometimes, things get overvalued in comparison to other things. Here, we can see there were periods when stocks were worth a lot relative to gold. Those times include the 1929 bubble, the 1960s Nifty Fifty era, and the dot-com bubble. It also includes now!

We know those other three market episodes led to some pretty brutal market performance, so it raises the question of whether current market conditions will to lead to painful times as well.

Given that we are already 20% or so down, it’s a scary thought to think that there remains plenty of room left to fall from this ratio’s perspective.