Gold has been flirting with a bear market this week with the price down nearly 20% from the intra-day high of $2,089 an ounce reached in August last year.
Still, bullion remains up nicely from a year ago and on a longer time horizon has performed in a way that should satisfy most gold bugs.
But in comparison to stock markets, gold doesn’t quite look like the store of value or lucrative investment it is made out to be.
Gold underperformance relative to the S&P 500 Index is striking, and even at its record high was a bargain on a historical basis.
Today, you need just over 2.3 ounces to buy the market. The ratio is now back to where it was in August 2018 when an ounce of gold could be picked up for $1,200.
The ratio today is also on par with that of August 1971, when the US left the gold standard and gold was pegged at $35 an ounce. The average since then is 1.56.
You can argue that during gold’s spike in 1980 to $850 an ounce – in inflation-adjusted terms still the all-time high – it lost touch with stock values (and some would say reality) entirely.
But even during the August 2020 peak when gold averaged $1,968 for the month did it return to the historical ratio.
All things being equal at today’s S&P500 index approaching 4,000 points, the fair value for gold is north of $2,500 an ounce, which either means gold should return to an uptrend soon or stocks are in for a real beating.