Precious Metals to the Moon

Understanding the Relationship Between the S&P 500 and Gold

There is a unique relationship between the S&P 500, which is a key stock market index, and gold. This relationship can be measured by looking at the ratio of the S&P 500 to gold. Over the years, experts have noticed that this ratio tends to break down at certain times, and when it does, it signals an important shift in the market. These shifts are often the best times to invest in gold, as they indicate potential major gains for the precious metals market.

The Importance of the Zero Line

To understand how this works, it helps to look at a chart that shows this ratio over time. The top part of the chart shows the ratio of the S&P 500 to gold, while the bottom part displays the distance from the 36-quarter moving average. A key point on this chart is the zero line. Every time the ratio falls below this zero line, it marks a period when investing in gold can be very rewarding. Historically, these moments have been followed by significant growth in the value of gold.

Historical Breakdowns of the Ratio

There have been a few major instances when this ratio broke down. The first notable breakdown occurred between 1929 and 1931, which was during the time of the Great Depression. The second major breakdown happened in 1971. This was a time when the financial world was undergoing big changes, including the U.S. moving away from the gold standard. Another significant breakdown took place in 2002, and it lasted until around 2010. Each of these breakdowns was followed by a period where gold performed exceptionally well.

The Current Situation and What It Means

Now, we are approaching another possible breakdown of this ratio. If you zoom in on the chart, you will see that we are very close to crossing below the zero line once again. The ratio is hovering right at the zero mark, which suggests that we may be on the brink of another major shift. If the ratio breaks down as expected, we could see a surge in the prices of precious metals like gold and silver.

Potential for Big Gains in Precious Metals

When this kind of breakdown happens, it has the potential to lead to significant gains in the precious metals market. Currently, we are seeing small monthly gains of 1% to 2% in the prices of gold and silver. However, if the ratio breaks down, these gains could become much larger, possibly reaching double digits. This is the kind of move that has occurred in the past when the ratio of the S&P 500 to gold collapsed.

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