Monday, 13 May 2013

S&P 500 / Gold Ratio hits highest level since November 2008

About a month ago we reported that the S&P 500 to Gold Ratio closed above 1.0 for the first time in two years. Since then (as of 10 May), the S&P 500 index has moved higher by 2.9% while gold (USD/oz) has declined by 7.3%, resulting in an 11.0% increase in the S&P 500 to Gold ratio. At 1.120, the ratio is now the highest it's been since week ending 14 November 2008 when it closed on 1.213.

Since the end of last year, the S&P 500 is now up by 14.7% while gold is down 12.4%. As a result, the ratio has increased 31.0% this year alone. This increase in the ratio now doubt reflects not only the bullish stock market sentiment so far this year, but, to the extent gold is viewed as a safe haven asset, also decreased risk aversion (and perhaps also lower future price inflation expectations). It is at times like this the equity investor needs to be extra careful with long positions and pay close attention to valuations (see here as well). 

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