On December 6th, US stocks, with the wind of a strong USD at their backs, poked their heads above their lows of 2009 for the second time this year. The previous attempt was short lived… Will this one fair better?
After the 2008-2009 crash bottomed on March 6th, 2009, the S&P 500 quickly bounced from a low of 22.7 grams to about 30 grams. Until July of 2011, it traded in a range between 24 and 35 grams, gradually trending lower. On July 1st, the index peaked at 28 grams and began falling, passing the 2009 low on August 4th. and trading as low as 18.6 grams, 18% below the 2009 low. It has stayed below the 22.7 gram level with one brief exception: on October 18, the S&P rallied to 23.4 and held above 22.7 until October 31, peaking at 23.6 grams, 4% above the 2009 low.
Let's see if this rally can carry the S&P above the 23.6 gram level. If so, a further rally to 26, 28 or even 30 grams area might be possible. Even these levels are well within the downtrend channel established since 2008, however. A lot hinges on the news coming out of Europe, and how it impacts investor psychology. With limited upside, and lots of downside, I would rather rely on solid gold than risk my wealth on animal spirits.
Comments on Stocks Poke their Noses Up
This is an incredibly misleading graph. You have plotted the price of stocks in terms of gold over the period in which the price of gold doubled.
Why don't you show it going back to the period of when the gold standard ended?
Because it shows how volatile gold is as an investment.
Why do you think gold's price is so high now?
Nothing to do with Animal Spirits. At least stocks are backed by something that has genuine economic value: buying and holding a diverse portfolio of stocks will outperform gold in the long run.
I agree with James on how this graph is misleading, however, it does show a slow rise in the value of gold for the past 6 months. I predict that in the next 5 or so years, were going to be looking at paying hundreds / thousands for gold.
@James Best:
James – I'm not sure you fully grasp what this graph attempts to show. All prices are relative to something else. Yes, the price of gold in term of dollars has doubled. But one could make the equivalent argument that the price of dollars, in terms of gold, has been cut in half.
Unlike gold, dollars are not a scarce resource. Rather dollars are created from thin air by decree. Now take into consideration that the federal reserve has tripled its balance sheet and then had this $2T increase in currency multiplied several times over through our fractional reserve banking system, and it's easy to see why everything has remained flat in terms of gold despite the S&P 500 showing growth in terms of dollars: inflation of the currency.