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Gold Vs. S&P 500: Where Is the Value?

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When one considers the fundamental backdrop for gold versus the S&P 500 Index, it should be clear which asset is offering the most value at current price levels.

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It has proven that the flow of the Federal Reserve's printed monies are more important than the total money stock for a variety of reasons and inflation according to the government's data is under control ex food and energy.

However, how are people supposed to survive without food and energy in today's world? The last time I went to fill up my gas tank or to purchase food, it's been clear that prices have gone up significantly. According to the 1990 version of consumer price reporting, real consumer inflation is running around 6% currently and shadowstats.com has the following comparison.



Unfortunately the 1980-based inflation numbers are even uglier, which based on Shadowstats' data chart would place consumer inflation at nearly 10%. The calculations being used by Shadowstats.com are based on the government's old ways of calculating inflation. The calculations were adjusted over time and today the data is completely manipulated by not including items that typically experience the largest levels of inflation.

Normally I talk about price action, probability based option trading, and technical information. However, before investors consider buying stocks near the all-time nominal (non-inflation adjusted) highs, why not simply consider the backdrop of the total economic situation.

Central banks around the world are printing money at an alarming rate and their balance sheets are growing to levels not seen in human history. Interest rates are being manipulated to levels that are historically at record lows or near record lows based on real inflation data.

Macroeconomic indicators are issuing a cautionary tone with significant divergences showing up in many areas. Earnings expectations for the S&P 500 in the third and fourth quarters of 2013 are extreme and borderline ridiculous.

So before jumping headlong into equities based on some sell side analyst's recommendation -- or even worse, a financial advisor who is more interested in his/her commission than he/she is about producing gains -- consider the following comparisons.

S&P 500 Index (SPX) Price Chart – 1-Year Price History



Gold Futures Spot Price Chart – 1-Year Price History



Clearly paper gold represented by gold futures is no substitute for physical ownership, but when one considers the fundamental backdrop for gold versus the S&P 500 Index, it should be clear which asset is offering the most value at current price levels. It does not require any inserted trendlines or oscillators; it should be clear which asset is expensive and which asset is cheap based on the real long-term economic fundamentals.

I will give you a hint regarding which asset is offering the most value. It can't be printed, it has represented the store of value since the advent of modern civilization, and it is senior to all paper currencies.

Editor's Note: JW Jones offers more content at OptionsTradingSignals.com.

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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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