Gold vs. Stocks…..So Far This Year

The S&P500 ended the week virtually unchanged. Volume was very light…..much lighter than the same week last year. Volatility crept higher and yet it’s still at very low levels, levels that are usually associated with complacency.

Macro news took a turn for the worse in the US.  Pending home sales were much lower than expected. The same thing happened with new home sales. This suggests that the recovery in housing—the recovery that’s been predicted by the “experts” every year starting in 2008—is simply not happening, and nowhere in sight. Initial jobless claims were worse than predicted, as were the leading economic indicators. Durable goods orders were the sole bright spot of the week: they beat estimates. And finally, the first estimate of the fourth quarter 2011 GDP, at 2.8%, came in well below expectations. What’s worse is that almost all of the growth came from a build-up of inventory, as opposed to a rise in final demand for goods and services. This is bad because it suggests that, in the absence of an immediate boost in final sales, a reversal of this inventory build is coming soon. Another name for such a reversal? A recession.

Technically, the S&P500 is very oversold, and is showing signs of waning momentum. While the uptrend on the daily charts is not formally broken, further gains from these levels would mean that the oversold conditions would simply become even more extremely oversold. Possible? Of course. But it’s becoming more and more likely that a pullback will soon occur.

A few weeks ago, we commented on the performance of gold relative to stocks (the S&P500) over the course of the entire year in 2011. And the surprising result was that gold vastly outperformed the S&P.

It’s interesting to note now, fully one month into 2012, how the two assets classes have fared.

As mentioned in the earlier post, Wall Street experts tend to promote stocks, sometimes blindly in the face of all adversity and risks.  At the same time, Wall Street tends to dismiss ownership of gold as a cult-like activity best left to be performed by a tiny and strange minority of devout followers. After all, who else would invest in a barbarous relic?

Well as it turns out, the S&P500 is up an impressive 4.7% year to date.

How did the barbarous relic do?  Up 10.%.  So gold has outperformed stocks by almost 130%.

What’s even more interesting, is that poor man’s gold, also known as silver, is up 22% year to date. So silver has outperformed stocks by a whopping 368%.

Yes it’s been only one month. But isn’t it amazing how something so despised by Wall Street (and let’s remember, it’s despised mainly because is doesn’t earn nearly the same amount of fees for Wall Street that trading in stocks does), has blown away the always-favored, the always-peddled asset class called equities?

What’s equally amazing is how Wall Street has suddenly become so silent with respect to gold. Despite such a massive out-performance, Wall Street has simply looked the other way, hoping that the public will simply not notice.

Finally, what’s most amazing is that if gold continues to outperform stocks and rises far more—relative to stocks—than it has so far, only then will Wall Street finally embrace the precious metals….precisely after they’ve risen to much higher price levels, precisely when they’ll become a far riskier and less promising investment.

The bottom line:  do your own analysis. Don’t follow the herd. And whatever you do, don’t listen to Wall Street.

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