Buy Gold…Sell The S&P500

Buy low, sell high!  As of early September 2015, the better choices are buying gold and selling the S&P500 Index and relevant stocks.

Why?

Examine the graph of the ratio of Gold to S&P500 Index for the past 25 years.  The ratio is low now and likely will correct higher.  I think gold will move higher and the S&P will move lower.

Examine the graph of the S&P500 – 20 years on a log scale.  The Index has broken the red support line dating back to 2009.  This is a “danger zone.”  In addition, internals are weak, moving averages have turned lower and crossed each other, and some global stock markets have already crashed.  I think it is likely the S&P500 moves much lower in the next six months.

Examine the graph of Gold – 20 years on a log scale.  The three trend lines, as I have drawn them, show that gold is at the low end of the range and over a third lower than the center line which indicates the average of the long term exponential trend upward.  I think gold will climb much higher in the next several years, and that the gold low in July will hold.

Could the S&P500 burst higher and gold be crushed again?  Certainly!  “Print” a few trillion dollars of digital “money” and buy S&P futures while selling short gold contracts and the S&P500 will levitate while paper gold prices drop.  But is that likely?

My estimation is that various forces will nudge the S&P500 higher and occasionally levitate it, but deflationary forces will overwhelm both markets and central banks, and global stock markets will continue their downward path.  Eventually people and investors will realize that “money” is now debt owed by a government, central bank or corporation that may not be solvent.  When confidence in the viability of debt based fiat currencies and confidence in the ability to repay debt diminishes, people will flock to gold investments.

My estimation:  S&P500 down for months, maybe several years…and gold up for years!  If not, then these (no longer relevant) ideas may still be true:

• Buy stocks for the long term. They always go up.
• Buy real estate – house prices always go up.
• Gold is useless and a relic of the past.
• Don’t fight the Fed.
• Trust Wall Street brokers as they have your best interests at heart.
• Politicians will take care of the middle class.
• Hope and change.

These are my opinions.  Do you own analysis and make your own choices.

Test:

1. How much gold should you own knowing that the Federal Reserve is in charge of the money supply?
2. How much gold should you own knowing that gold protects purchasing power and central banks want to devalue their currencies?
3. How much gold should you own knowing that consumer prices rise during times of war? 

Gary Christenson

The Deviant Investor